Rating Action: Moody's affirms eleven and downgrades five classes of MSBAM 2013-C9
Global Credit Research - 31 Jul 2020
Approximately $914 million of structured securities affected
New York, July 31, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on eleven classes and downgraded the ratings on five classes in Morgan Stanley Bank of America Merrill Lynch Trust 2013-C9, Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C9 as follows:
Cl. A-AB, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. A-3FL, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. A-3FX, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa3 (sf); previously on Jun 10, 2019 Affirmed Aa3 (sf)
Cl. C, Affirmed A3 (sf); previously on Jun 10, 2019 Affirmed A3 (sf)
Cl. D, Downgraded to Ba1 (sf); previously on Jun 10, 2019 Affirmed Baa3 (sf)
Cl. E, Downgraded to Ba3 (sf); previously on Apr 17, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to B2 (sf); previously on Apr 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to B3 (sf); previously on Apr 17, 2020 B1 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Caa3 (sf); previously on Apr 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
Cl. PST**, Affirmed Aa3 (sf); previously on Jun 10, 2019 Affirmed Aa3 (sf) Cl. X-A*, Affirmed Aaa (sf); previously on Jun 10, 2019 Affirmed Aaa (sf)
Cl. X-B*, Affirmed A2 (sf); previously on Jun 10, 2019 Affirmed A2 (sf)
* Reflects Interest Only Classes
** Reflects Exchangeable Classes
The ratings on eight 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 two IO classes were affirmed based on the credit quality of the referenced classes.
The rating on the exchangeable class, Cl. PST, was affirmed due to the credit quality of the referenced exchangeable classes.
The ratings on five P&I classes, Cl. D, Cl. E, Cl. F, Cl. G, and Cl. H were downgraded due to a decline in pool performance and higher anticipated losses due to an increase in the level of specially serviced and troubled loans in addition to the material exposure to retail and hotel properties.
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 5.9% of the current pooled balance, compared to 2.4% at Moody's last review. Moody's base expected loss plus realized losses is now 4.4% of the original pooled balance, compared to 1.8% 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 additional downgrades 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 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 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 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 **). Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
As of the July 17, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 26% to $951.2 million from $1.28 billion at securitization. The certificates are collateralized by 54 mortgage loans ranging in size from less than 1% to 17% of the pool, with the top ten loans (excluding defeasance) constituting 46% of the pool. Eight loans, constituting 25.8% 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 12, compared to 13 at Moody's last review.
As of the July 2020 remittance report, loans representing 70% were current or within their grace period on their debt service payments, 1% were beyond their grace period but less than 30 days delinquent and 2% were between 30 -- 59 days delinquent.
Eighteen loans, constituting 25.0% of the pool, are on the master servicer's watchlist, of which nine loans, representing 10.3% 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.
There have been no loans liquidated from the pool. Three loans, constituting 23% of the pool, are currently in special servicing. All three loans have transferred to special servicing since March 2020.
The two largest specially serviced loans are the Milford Plaza Fee Loans ($165.0 million -- 17.3% of the pool), which represents a pari passu interest in a $275 million first mortgage. The loan is secured by the ground lease on the land beneath the Row NYC Hotel, formerly the Milford Plaza Hotel -- a 28-story, 1,331 key full-service hotel located in Midtown Manhattan. The triple net (NNN) ground lease commenced in 2013, expires in 2112 and includes annual CPI rent increases. The tenant has purchase options at the end of years 10, 20 and 30. Moody's analysis considered the value of the non-collateral improvements that the leased fee interest underlies when assessing the risk of the loan, as the subject loan is senior to any debt on the improvements. Due to the decline in performance of the non-collateral improvements, we have removed our investment grade structured credit assessment on this loan. The loan is last paid through its April 2020 payment date, is 60 days delinquent, and transferred to special servicing in June 2020 due to default on the ground lease. The special servicer is dual tracking the foreclosure with workout discussions.
The third largest specially serviced loan is the Dartmouth Mall ($57.9 million -- 6.1% of the pool), which is secured by an approximately 531,000 square foot (SF) component of a 671,000 SF regional mall in Dartmouth, Massachusetts. The property is anchored by Macy's, J.C. Penney, Burlington, and a 12-screen AMC theatre. The Macy's is not part of the collateral. Sears, which occupied 108,440 SF, recently closed in August 2019 and was partially backfilled by Burlington, now 43,840 SF. Collateral occupancy was 87% and total mall occupancy was 90% as of March 2020, compared to 99% and 99%, respectively, in December 2018. In addition to redeveloping the old Sears box for Burlington, the sponsor, PREIT, is adding 35,000 SF of new outparcels with estimated completion in 2020. As of December 2019, revenue has increased 14% and the net operating income (NOI) has increased 18% since securitization. Inline sales (tenants less than 10,000 SF) for the trailing 12 months ending February 2020 were $434 per SF. However, the property has experienced declining anchor sales since 2016 and has tenants such as J.C. Penney, Pier 1, and GNC who have recently filed for bankruptcy. The property was closed from March through June 2020 and is currently open with reduced hours. The loan is last paid through April 2020 and is 60 days delinquent. The loan transferred to special servicing in June 2020 due to a coronavirus related relief request, which was approved and provides short-term relief.
Moody's has also assumed a high default probability for five poorly performing loans, constituting 6.5% of the pool. The largest troubled loan is the 48 West 48th Street Loan ($22.3 million -- 2.3% of the pool), which is secured by a 136,000 SF Class B office building in Midtown Manhattan on West 48th street between 5th and 6th Avenue. Performance has historically been strong with revenues increasing every year and NOI improving 14% since securitization. However, there is significant near term roll with 22% within 1 year, 21% in 1-2 years, and the loan underperformed from March through July 2020, when it was cured.
The second largest troubled loan is The South Loop Shops Loan ($14.6 million -- 1.5% of the pool), which is secured by a 63,000 SF retail property in Chicago, Illinois. The property is 60 days delinquent and has a gym, XSport Fitness, occupying 70% of the NRA. A coronavirus related relief requested was submitted which is currently being discussed.
The third largest troubled loan is the Starkville Hospitality Portfolio Loan ($11.5 million -- 1.2% of the pool), which is secured by 2 limited service hotels in Starkville, Mississippi. The portfolio has underperformed since securitization and the borrower plans on starting a renovation project to help drive demand. The loan is last paid through April 2020 and is 30 days delinquent.
Moody's has estimated an aggregate loss of $21.4 million (a 35% expected loss based on a 75% probability default) from the specially serviced and troubled loans.
Moody's received full year 2019 operating results for 98% of the pool, and full or partial year 2020 operating results for 45% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 108%, compared to 97% 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% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.1%.
Moody's actual and stressed conduit DSCRs are 1.62X and 0.97X, respectively, compared to 1.65X and 1.13X 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 11% of the pool balance. The largest loan is the Apthorp Retail Condominium Loan ($56.9 million -- 6.0% of the pool), which is secured by a 12,851 SF ground floor retail condominium unit within the Apthorp condominium building located on Broadway between 79th and 80th streets on the Upper West Side in New York City. The building was built between 1906-1908 and is on the National Register of Historic Places. The property was 81% leased as of May 2020, the same as December 2018. Property performance has declined from securitization as a result of increasing expenses and two tenants vacating between 2017-2018, which has been partially offset by increasing rent steps and expense reimbursements. As of May 2020, there were no leasing prospects for the vacancies. Moody's LTV and stressed DSCR are 122% and 0.71X, respectively, compared to 109% and 0.77X at the last review.
The second largest loan is the Lodge at Sonoma Renaissance Resort and Spa Loan ($26.6 million -- 2.8% of the pool), which is secured by a 182 room full service hotel located on 9.2 acres of land in Sonoma, California neighboring Napa County or "Wine Country"). The property was built in 2000 and has undergone $5 million in capital improvements since 2004. The property features 23 buildings, 18 of which are free-standing cottages used as house guestrooms. Amenities include: restaurant, bar/cafe, 10,000 SF spa, 4 outdoor pools, fitness center, business center, and 11,000 SF of indoor meeting space. The property has performed well with revenues increasing 24% and NOI increasing 61% since securitization. As of December 2019 STR report, the property was outperforming its competitive set with a RevPar (revenue per available room) index of 117%, compared to 108% in 2018. Per the sponsor's 2019 annual report, they plan on renovating the hotel by opening a new restaurant with a celebrity chef, upgrading the spa, and enhancing the grounds. The loan is on the watchlist due to the borrower submitting a coronavirus related relief request, which is currently being discussed. Moody's LTV and stressed DSCR are 60% and 1.95X, respectively, compared to 55% and 2.08X at the last review.
The third largest loan is the Palm Court at Empire Center Loan ($24.9 million -- 2.6% of the pool), which is secured by a 288,000 SF of anchor and in-line retail space within a 626,000 SF power shopping center located in Fontana, California. The larger shopping center is anchored by Target (non-collateral), Kaiser Permanente medical offices (non-collateral), 24 Hour Fitness, Ross Dress For Less, and TJ Maxx. As of March 2020, the property was 90% occupied, compared to 93% occupied in December 2018. The property has always performed well with occupancy above 90% and strong NOI growth driven primarily by a 20% increase in revenues since securitization. 24 Hour Fitness, the top tenant accounting for 28% of NRA, recently filed for Chapter 11 bankruptcy proceedings in June 2020. Moody's LTV and stressed DSCR are 99% and 1.06X, respectively, compared to 84% and 1.22X 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.
Seth Glanzman 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 Deryk Meherik Senior Vice President/Manager 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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