UBS-Barclays Commercial Mortgage Trust 2012-C2 -- Moody's affirms three and downgrades nine classes of UBS-Barclays 2012-C2

Rating Action: Moody's affirms three and downgrades nine classes of UBS-Barclays 2012-C2

Global Credit Research - 14 Dec 2020

NOTE: On December 17, 2020, the press release was corrected as follows: In the REGULATORY DISCLOSURES section, the hyperlink in the environmental, social and governance (ESG) risks paragraph was changed to https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406. Revised release follows.

Approximately $837.8 million of structured securities affected

New York, December 14, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on three classes and downgraded the ratings on nine classes in UBS-Barclays Commercial Mortgage Trust 2012-C2, Commercial Mortgage Pass-Through Certificates, Series 2012-C2.

Cl. A-3, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed Aaa (sf)

Cl. A-4, Affirmed Aaa (sf); previously on Jun 29, 2020 Affirmed Aaa (sf)

Cl. A-S-EC, Downgraded to Aa2 (sf); previously on Jun 29, 2020 Affirmed Aaa (sf)

Cl. B-EC, Downgraded to Baa1 (sf); previously on Jun 29, 2020 Affirmed Aa2 (sf)

Cl. C-EC, Downgraded to Ba1 (sf); previously on Jun 29, 2020 Affirmed A2 (sf)

Cl. D, Downgraded to Caa1 (sf); previously on Jun 29, 2020 Downgraded to Ba2 (sf)

Cl. E, Downgraded to Caa3 (sf); previously on Jun 29, 2020 Downgraded to Caa1 (sf)

Cl. F, Downgraded to C (sf); previously on Jun 29, 2020 Downgraded to Caa3 (sf)

Cl. G, Affirmed C (sf); previously on Jun 29, 2020 Downgraded to C (sf)

Cl. X-A*, Downgraded to Aa1 (sf); previously on Jun 29, 2020 Affirmed Aaa (sf)

Cl. X-B*, Downgraded to Caa3 (sf); previously on Jun 29, 2020 Downgraded to Caa2 (sf)

Cl. EC**, Downgraded to Baa1 (sf); previously on Jun 29, 2020 Affirmed Aa3 (sf)

* Reflects interest-only classes

** Reflects exchangeable classes

RATINGS RATIONALE

The ratings on two principal and interest (P&I) classes, Cl. A-3 and Cl. A-4, were affirmed due to their significant 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 rating on Cl. G was affirmed due to the anticipated losses to the pool.

The ratings on six P&I classes were downgraded due to higher anticipated losses and increased interest shortfall risks driven by the significant exposure to specially serviced loans primarily secured by regional malls. Specially serviced loans represent nearly 25% of the pool, of which the three largest (representing 24% of the pool) are secured by regional malls. The three specially serviced mall loans include Louis Joliet Mall (9.7% of the pool), Crystal Mall (9.6% of the pool) and Pierre Bossier Mall (4.7% of the pool), all of which had already experienced declines in performance prior to 2020. Furthermore, for each loan foreclosure is being considered, or the borrower has already indicated plans to transfer the loan to the trust. Appraisal reductions have not yet been recognized on any of the specially serviced malls loans, therefore Moody's anticipates interest shortfalls may increase materially. In aggregate five loans, representing a combined 35% of the pooled balance, are secured by regional malls, including Westgate Mall (3.6% of the pool) in which the sponsor, CBL & Associates Properties, Inc. ("CBL"), has recently declared Chapter 11 bankruptcy.

The rating on two interest-only (IO) classes were downgraded due to decline in the credit quality of their referenced classes.

The rating on the exchangeable class was downgraded due to decline in 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 18.0% of the current pooled balance, compared to 11.9% at Moody's last review. Moody's base expected loss plus realized losses is now 13.1% of the original pooled balance, compared to 8.7% 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 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.

DEAL PERFORMANCE

As of the November 13, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 27.6% to $880.4 million from $1.22 billion at securitization. The certificates are collateralized by fifty-two mortgage loans ranging in size from less than 1% to just under 9.7% of the pool, with the top ten loans (excluding defeasance) constituting 62.1% of the pool. One loan, constituting 4.4% of the pool, has an investment-grade structured credit assessment. Seventeen loans, constituting 19.2% of the pool, have defeased and are secured by US government securities.

The transaction has a significant concentration to five Class B regional malls, representing approximately 35% of the pool balance. Class B malls in secondary and tertiary locations have historically exhibited higher cash flow volatility, loss severity and may face higher refinancing risk compared to other major property types. Three of these regional malls (23% of the pool) have already been transferred to special servicing and the mall loans all have loan maturity dates in less than two years.

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 14, compared to 15 at Moody's last review.

As of the November 13, 2020 remittance report, loans representing 75.3% were current or within their grace period on their debt service payments and 24.7% were greater than 90 days delinquent, in foreclosure or REO.

Five loans, constituting 6.5% 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 since securitization. There are currently five loans in special servicing, secured by four properties and constituting 24.7% of the balance, of which the three loans secured by regional malls, 23.9% of the pool, transferred since May 2020. The three specially serviced mall loan were already experiencing material declines in performance prior to 2020 and the impact of the coronavirus pandemic has accelerated this trend.

The largest specially serviced exposure is the Louis Joliet Mall Loan ($85.0 million -- 9.7% of the pool), which is secured by a 359,000 square foot (SF) portion of a 975,000 SF regional mall located in Joliet, Illinois. At securitization the mall was anchored by Macy's, Sears, JC Penney and Carson Pirie Scott & Co (all non-collateral). However, both Sears and Carson Pirie Scott & Co. closed their stores at this location in 2018. Two major collateral tenants, MC Sport and Toys R Us, also closed their stores in 2017 and 2018, respectively. Based on September 2020 rent roll, the mall's total and inline occupancy declined to approximately 63% and 89%, respectively, compared to 73% and 96%, respectively, in December 2019. The property's performance had already exhibited significant declines in performance in recent years due to lower revenues. The 2019 NOI declined 24% year over year and was 31% lower than in 2012. The reported comparable in-line tenant sales for the trailing twelve-month period (TTM) ending March 2020 were $415 per square foot (PSF), compared to $488 PSF for the TTM June 2019. The loan transferred to special servicing in May 2020 due to imminent monetary default and as of the November 2020 remittance statement is last paid through its March 2020 payment date. The mall re-opened in June 2020 after being temporary closed as a result of the coronavirus. The loan is interest-only for the entire term and has maturity in July 2022. The borrower has recently indicated it will not contribute additional capital towards the property and the special servicer indicated negotiations for a deed-in-lieu or stipulated foreclosure are in process.

The second largest specially serviced loan is the Crystal Mall Loan ($84.2 million -- 9.6% of the pool), which is secured by a 518,500 SF portion of a 783,300 SF super-regional mall located in Waterford, Connecticut. At securitization the mall contained three anchors: Macy's, Sears, and JC Penney (Macy's and Sears were non-collateral anchors). Sears, owned by Seritage Growth Properties, closed its store at this location in 2018 and the space remains vacant. The subject is the only regional mall within a 50-mile radius, but it faces significant competition from other retail centers including Waterford Commons and Tanger Outlets. Property performance has declined in recent years due to lower rental revenue. The 2019 NOI declined over 15% year over year and was over 40% below the NOI in 2012. Furthermore, mall stores less than 10,000 SF reported sales of less than $300 PSF in both 2019 and 2018. As of June 2020, the collateral occupancy was 82% occupied, compared to 78% in December 2019 and 87% in December 2018. The property's reported June 2020 NOI DSCR was 0.83X, compared to 1.16X in December 2019 and 1.37X in December 2018. The loan transferred to special servicing in July 2020 due to imminent default and as of November 2020 remittance statement was last paid through its May 2020 payment date. The special servicer indicated they are working with the borrower to transfer the property to REO.

The third specially serviced loan is the Pierre Bossier Mall Loan ($41.4 million -- 4.7% of the pool), which is secured by a 265,400 SF portion of a 612,300 SF regional mall located in Bossier City, Louisiana. At securitization the mall contained four non-collateral anchors: Dillard's, Sears, JC Penney, and Virginia College. Both Sears and Virginia College closed at their locations in 2018. The property performance has declined annually since 2015 as a result of continued declines in rental revenues. The NOI DSCR has been below 1.00X since 2019 and the 2019 NOI was down 4% year over year and was 42% lower than in 2012. Furthermore, the comparable inline stores less than 10,000 SF reported sales of approximately $305 PSF in 2019, compared to $324 PSF in 2018. As of September 2020, rent roll, the total and inline occupancy were 82% and 64%, respectively, compared to 81% and 62% in December 2019 and 86% and 72% in December 2018. The mall also faces competition from several other retail centers within a 10-mile trade area, including a regional mall (Mall St. Vincent), an outdoor mall (Louisiana Boardwalk), a lifestyle center (Stirling Bossier Shopping Center), and two power centers (Regal Court and Shoppes at Bellemead). The loan transferred to special servicing in June 2020 due to imminent default and as of the November 2020 remittance date is last paid through its October 2020 payment date. The mall is sponsored by Brookfield Properties, and the special servicer commentary indicates legal remedies are being pursued as they continue to review the asset.

The remaining specially serviced loan is the Behringer Harvard Portfolio Loan ($7.2 million -- 0.8% of the pool), which originally consisted of two office properties located in Houston and Irving, TX. The office property in Irving was released in February 2016, leaving the 180,000 SF Houston property as the sole remaining collateral. The loan transferred to special servicing in March 2017 as a result of imminent default and the asset became REO in July 2017. The remaining property was only 38% occupied in October 2020.

Moody's has identified one additional troubled loan secured by a regional mall. The troubled loan is the Westgate Mall ($31.7 million -- 3.6% of the pool), which is secured by a 453,544 SF portion of a regional mall. The mall anchors include Dillard's; Belk (both non-collateral) and JC Penney. A former anchor, Sears (193,000 SF), vacated in September 2018 and the space remains vacant. Major collateral tenants include an 8-screen Regal Cinema (23,000 SF; lease expiration in October 2021), Bed Bath & Beyond (36,000 SF; lease expiration in January 2026) and Dick's Sporting Goods (lease expiration January 2030; lease expiration January 2030). However, the Regal Cinema is temporarily closed as a result of the pandemic. As of September 2020, total occupancy was 93%, compared to 90% at year-end 2019, and 83% at year-end 2018. The property's performance increased from securitization through 2015, however, the malls NOI has since declined annually due to declines rental revenue and the 2019 NOI was 19% lower than in 2012. The June 2020 NOI DSCR was 1.64X, compared to 1.71X in 2019. CBL & Associates Properties, Inc. ("CBL"), which is the sponsor and manages the property, declared Chapter 11 bankruptcy in November 2020. The loan has amortized nearly 21% since securitization and is last paid through its October 2020 payment date, which was still within its grace period for the November 2020 payment date. Due to the recent declines in performance, the current retail environment and the recent bankruptcy of the sponsor, Moody's has identified this as a troubled loan.

Moody's has estimated an aggregate loss of $142 million (57% expected loss on average) from the specially serviced and troubled loans.

As of the November 2020 remittance statement cumulative interest shortfalls were $1.2 million and only impacted the non-rated Cl. H. However, Moody's anticipates interest shortfalls are expected to increase as updated appraisals or loan modifications are executed on the specially serviced regional malls loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.

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 88% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 93%, compared to 101% 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 1.39X and 1.18X, respectively, compared to 1.43X and 1.12X 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 909 Third Avenue Net Lease Loan ($38.6 million -- 4.4% of the pool), which is secured by the fee interest in a parcel of land located beneath a 1.3 million SF office property located in Manhattan, New York. The collateral is leased to an affiliate of Vornado Realty Trust and the annual ground lease payments are $1.6 million. The loan is interest-only throughout the term prior to the anticipated repayment date (ARD) in May 2022. Moody's structured credit assessment is a1 (sca.pd).

The top three performing conduit loans represent 22.3% of the pool balance. The largest loan is the Southland Center Mall Loan ($67.8 million -- 7.7% of the pool), which is secured by a 611,000 SF portion of a 903,500 SF super-regional mall located in Taylor, Michigan. The mall is currently anchored by Macy's (non-collateral) and JC Penney. Other major tenants include Best Buy and a 12-screen, Cinemark multiplex theater. As of September 2020, the total mall and the inline space were 94% and 81% occupied, respectively, compared to 97% and 93% in March 2019. Per the September 2020 tenant sales report, comparable inline sales for tenants under 10,000 SF were $374 PSF, compared to $439 PSF at year-end 2019 and $430 in 2018. The property's performance had significantly improved through 2019 as a result of higher rental revenues and the 2019 NOI was 32% higher than in 2012. The loan remains current as of the November 2020 remittance statement payment date and has amortized 14% since securitization. The loan sponsor is Brookfield Properties. Moody's LTV and stressed DSCR are 101% and 1.13X.

The second largest conduit loan is the Two MetroTech Loan ($65.4 million -- 7.4% of the pool), which is secured by a 10-story, Class-A office building containing 511,920 SF of net rentable area located in Brooklyn, New York. The property is well located approximately five minutes from downtown Manhattan and is accessible via 12 subway lines and the Long Island Railroad. The improvements are situated on New York City owned land. The ground lease expires in 2087, and beginning in 2025, the ground rent will be adjusted to be 10% of the fair market value of the land, considered as unimproved and unencumbered by the ground lease. As of June 2020, the building was approximately 100% leased, unchanged since 2013. The five largest tenants represent 94% of the property's square footage and all have leases expirations in December 2022 or later. The loan has amortized 14% since securitization and Moody's LTV and stressed DSCR are 91% and 1.07X.

The third largest conduit loan is the Trenton Office Portfolio Loan ($63.0 million -- 7.2% of the pool), which is secured by two Class-A mid-rise office buildings containing 473,658 SF in aggregate and located in downtown Trenton, New Jersey. As of June 2020, the buildings were approximately 96% leased, unchanged since 2013. The largest tenant is the State of New Jersey, which leases approximately 86% of the aggregate square footage on leases through December 2022. The loan has also amortized 14% since securitization and Moody's LTV and stressed DSCR are 87% and 1.25X.

REGULATORY DISCLOSURES

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_1243406.

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.

Dariusz Surmacz 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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Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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