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UBS Commercial Mortgage Trust 2018-C9 -- Moody's affirms seven classes of UBSCM 2018-C9

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Rating Action: Moody's affirms seven classes of UBSCM 2018-C9Global Credit Research - 01 Feb 2021Approximately $636 million of structured securities affectedNew York, February 01, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on seven classes in UBS Commercial Mortgage Trust 2018-C9, Commercial Mortgage Pass-Through Certificates, Series 2018-C9 as follows:Cl. A-1, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)Cl. A-2, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)Cl. A-3, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)Cl. A-4, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)Cl. A-S, Affirmed Aa2 (sf); previously on Aug 15, 2019 Affirmed Aa2 (sf)Cl. A-SB, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)Cl. X-A*, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)* Reflects interest-only classRATINGS RATIONALEThe ratings on the P&I classes were affirmed because of their credit support and the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.The rating on the IO class was affirmed based on the credit quality of its referenced 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 9.0% of the current pooled balance, compared to 5.8% at Moody's last review. Moody's base expected loss plus realized losses is now 8.9% of the original pooled balance, compared to 5.8% 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 RATINGSThe 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 ACTIONThe principal methodology used in rating all classes except interest-only classes was "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. 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 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. DEAL PERFORMANCEAs of the January 15, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 1% to $831 million from $839 million at securitization. The certificates are collateralized by 43 mortgage loans ranging in size from less than 1% to 8% of the pool, with the top ten loans (excluding defeasance) constituting 50% of the pool.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 26, the same as at Moody's last review.As of the January 2021 remittance report, loans representing 87% were current or within their grace period on their debt service payments, 3% were beyond their grace period but less than 30 days delinquent, 1% were between 30 -- 59 days delinquent, 1% were between 60 -- 89 days delinquent, and 8% were greater than 90 days delinquent or in foreclosure.Eleven loans, constituting 23.5% of the pool, are on the master servicer's watchlist, of which three loans, representing 3% of the pool, indicate the borrower has received loan modifications in relation to the 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.Five loans, constituting 14.6% of the pool, are currently in special servicing. Three of the specially serviced loans, representing 10.6% of the pool, have transferred to special servicing since March 2020. No loans have been liquidated from the pool.The largest specially serviced loan is the Midwest Hotel Portfolio Loan ($48.2 million -- 5.8% of the pool), which is secured by the borrower's fee simple interest in a portfolio of eight limited-service hospitality properties located across Missouri, Illinois and Indiana. Five hotels operate under the Hilton flag as either a Hampton Inn (four) or a Hilton Garden Inn (one). Three hotels operate under the Marriott flag as Fairfield Inns. The portfolio was built at various points between 1994 and 2006 and offers a total of 658 guestrooms. Property performance has consistently declined since securitization. The loan transferred to special servicing in in March 2020 due to imminent default as a result of the pandemic. Three of the hotels failed their most recent franchise inspections and will undergo upcoming renovations and manager trainings. The borrower and lender are negotiating potential debt relief terms. The loan has amortized by over 3% and is currently paid through September 2020.The second largest specially serviced loan is 22 West 38th Street Loan ($34.8 million -- 4.2% of the pool), which is secured by a 9,026 square feet (SF) office building with 4,335 SF of ground floor retail, located at 22 West 38th Street, on the south side of West 38th Street between 5th and 6th Avenue in New York, New York. The largest tenant, Knotel Inc. occupies 51% of the net rentable area (NRA) with a lease expiration in March 2033. The property was approximately 91% leased as of December 2019 compared to 100% at securitization. In addition to a decrease in occupancy, operating expenses have also increased since securitization, driven mainly by higher legal & professional expenses and utilities expenses. The loan transferred to special servicing in May 2020 due to imminent monetary default at the borrower's request as a result of the pandemic. The loan is interest only throughout the entire loan term and is currently paid through January 2021. The special servicer is negotiating with the borrower regarding next steps.The third largest specially serviced loan is the Gymboree Distribution Center Loan ($17.2 million -- 2.1% of the pool), which is secured by 450,000 SF of warehouse/distribution space facility located in Dixon, California. Gymboree was the sole tenant under a lease that expired in 2030. In January 2019, Gymboree filed for bankruptcy and vacated this property. The loan transferred to special servicing in March 2019 due to the tenant's bankruptcy declaration and is currently paid through January 2021. The borrower is keeping the loan current. There is a case pending approval for a replacement tenant and to resolve outstanding issues. The loan has amortized approximately 4% since securitization and was included in the conduit statistics presented below.The fourth largest specially serviced loan is the IMG Building Loan ($16.3 million -- 2.0% of the pool), which is secured by a 232,908 SF office building located in Cleveland, Ohio. The loan transferred to special servicing in March 2019 due to the borrower not complying with cash management provisions and not curing the default and is currently paid through May 2019. The borrower has not submitted any acceptable proposals and a receiver is in control of the property. The lender filed for summary judgement.The remaining specially serviced loan is secured by a hotel property located in Oro Valley, Arizona which has been impacted by business disruptions stemming from the coronavirus pandemic. This loan was included in the conduit statistics presented below. Moody's estimates an aggregate $30.3 million loss for the specially serviced loans (30.5% 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 98% of the pool, and partial year 2020 operating results for 92% of the pool (excluding three of the five specially serviced loans and all defeased loans). Moody's weighted average conduit LTV is 118%, compared to 116% 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 17% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 10.1%.Moody's actual and stressed conduit DSCRs are 1.70X and 0.95X, respectively, compared to 1.70X and 0.96X 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 20.5% of the pool balance. The largest loan is the Aspen Lake Office Portfolio Loan ($65.0 million -- 7.8% of the pool), which is secured by the borrower's fee simple interest in a 381,588 SF, three-building office park located in Austin, Texas, approximately 15.9 miles north of the Austin CBD. The property is also encumbered with $20 million of mezzanine debt. The portfolio was 94% leased as of September 2020 compared to 87% in January 2018. The loan is being monitored for increased roll-over risk due to approximately 33% of NRA rolling over the next 12 months. Several of the largest tenants at the property are subleasing either all or a portion of their spaces. The second largest tenant announced that they will not be renewing their lease. The loan is interest only for the entire term. Moody's LTV and stressed DSCR are 131% and 0.81X, respectively, the same as at the last review.The second largest loan is the AFIN Portfolio Loan ($60.0 million -- 7.2% of the pool), which represents a pari passu portion of a $210.0 million mortgage loan. The loan is secured by the borrower's fee simple interest in 12 anchored shopping centers located across the following eight states: North Carolina (3), Nevada (2), Florida (2), Ohio (1), Texas (1), South Carolina (1), Oklahoma (1) and Kentucky (1). The portfolio contains 2.4 million SF of aggregate rentable area that was 90.3% occupied at securitization and increased to 91% as of June 2020. The three largest anchor tenants across the portfolio include Kohl's, Best Buy, and The Home Depot. The loan is interest only for the entire term. Moody's LTV and stressed DSCR are 109% and 0.98X, the same as at the last review.The third largest loan is the City Square and Clay Street Loan ($45.0 million -- 5.4% of the pool), which represents a pari passu portion of a $90.0 million mortgage loan. The loan is secured by the fee simple interest in four mixed-use (office/retail/fitness center) buildings totaling 246,136 SF and a 1,154 space parking garage located in downtown Oakland, California within the City Center District. The property was 67% leased as of September 2020 compared to 94% in December 2017. Occupancy dropped after Clubsource at City Center (56,800 SF / 23% NRA) vacated at lease expiration in November 2020 (fitness center tenant). In addition to the drop in occupancy, operating expenses have also increased over underwritten levels, driven by higher utilities, G&A expenses and real estate taxes. Moody's LTV and stressed DSCR are 137% and 0.72X, respectively, compared to 127% and 0.78X at the last review.REGULATORY DISCLOSURESFor 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.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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. Fred Kasimov 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 Romina Padhi 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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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