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WF-RBS COMMERCIAL MORTGAGE TRUST 2011-C2 -- Moody's downgrades three classes of WFRBS 2011-C2

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Rating Action: Moody's downgrades three classes of WFRBS 2011-C2Global Credit Research - 10 Feb 2021Approximately $18.6 million of structured securities affectedNew York, February 10, 2021 -- Moody's Investors Service, ("Moody's") has downgraded the ratings on three classes in WF-RBS Commercial Mortgage Trust 2011-C2, Commercial Mortgage Pass-Through Certificates, Series 2011-C2, as follows:Cl. E, Downgraded to B2 (sf); previously on June 8, 2020 Downgraded to Ba3 (sf)Cl. F, Downgraded to Caa3 (sf); previously on June 8, 2020 Downgraded to Caa2 (sf)Cl. X-B*, Downgraded to C (sf); previously on June 8, 2020 Downgraded to B2 (sf)* Reflects interest-only classesRATINGS RATIONALEThe ratings on Cl. E and Cl. F were downgraded due to the anticipated losses and increased risk of interest shortfalls as result of the significantly exposure to specially serviced loans (96% of the pool) that are secured by regional malls. The two specially serviced loans are Port Charlotte Town Center Loan (61% of the pool) and Aviation Mall (36% of the pool) both of which were exhibiting declining performance prior to 2020, are more than 90 days delinquent and have now passed their original loan maturity dates. While Cl. E has already paid down 81% from securitization, the significant exposure to delinquent loans in special servicing increases the potential for interest shortfalls to impact this class.The rating of the IO class, Class X-B, was downgraded due to a decline in the credit quality of its reference classes resulting from principal paydowns of higher quality reference classes. The deal has paid down 92% since last review and 96% from securitization.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 69.0% of the current pooled balance, compared to 6.4% at Moody's last review. Moody's base expected loss plus realized losses is now 2.9% of the original pooled balance, compared to 3.2% at the last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE 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, 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 "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 methodologies used in rating interest-only classes were "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 *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.Moody's analysis incorporated a loss and recovery approach in rating the P&I classes in this deal since 96% of the pool is in special servicing. In this approach, Moody's determines a probability of default for each specially serviced and troubled loan that it expects will generate a loss and estimates a loss given default based on a review of broker's opinions of value (if available), other information from the special servicer, available market data and Moody's internal data. The loss given default for each loan also takes into consideration repayment of servicer advances to date, estimated future advances and closing costs. Translating the probability of default and loss given default into an expected loss estimate, Moody's then applies the aggregate loss from specially serviced loans to the most junior classes and the recovery as a pay down of principal to the most senior classes.DEAL PERFORMANCEAs of the January 15, 2021 distribution date, the transaction's aggregate certificate balance has decreased by 96% to $54.3 million from $1.3 billion at securitization. The certificates are collateralized by 3 remaining mortgage loans, two of which (96.4% of the pool) are in special servicing. The pool has not experienced any realized losses.The largest specially serviced loan is the Port Charlotte Town Center Loan ($33.1 million -- 60.9% of the pool), which is secured by an approximately 490,000 square feet (SF) portion of a 774,000 SF super regional mall in Port Charlotte, Florida. The mall is anchored by JC Penney and a 16-screen Regal Cinemas, which are part of the collateral. Additionally, Dillard's, Macy's and Bealls are anchors at the property but not part of the collateral. Macy's announced that they will be closing this location in the spring of 2021 and Sears, a former tenant, vacated in 2019 in relation to its bankruptcy filing. As of September 2020, the total mall was 82% leased, compared to 84% in February 2020 and 95% in December 2017. Accounting for the Macy's closure, the total mall would be 72% leased. The property is also encumbered by a $7.5 million B-note. The loan transferred to special servicing in January 2020 after the borrower requested a maturity extension from its original loan maturity in November 2020. However, the property's performance was significantly impacted by the coronavirus pandemic and the June 2020 NOI DSCR was 0.97X, compared to 1.63X for year-end 2019. The loan has recognized a $4.1 million appraisal reduction as a result of a September 2020 appraised value of $28, a 65% decline from securitization. The special servicer indicated a forbearance agreement was initially being discussed, however, the borrower has recently agreed to a consensual foreclosure.The other specially serviced loan is the Aviation Mall Loan ($19.2 million -- 35.5% of the pool), which is secured by a regional mall located in Queensbury, New York, approximately 50 miles north of Albany. Major tenants at the property include J.C. Penney, Dick's Sporting Goods, Ollies Bargain Outlet and Regal Aviation Mall 7. Two former anchor tenants, Sears (94,273SF) and Bon-Ton (67,700 SF), vacated in 2018, however, Ollies Bargain Outlet backfilled approximately 30,000 SF of the former Bon-Ton space and opened for business in August 2019. Property performance has continually declined since 2016 as a result of lower rental revenues. As of September 2020, the inline occupancy was only 45%, while total mall occupancy was 72%. Property performance has been further impacted by the pandemic with the June 2020 NOI DSCR declining to 0.50X, as compared to 1.25X for year-end 2019. The loan transferred to special servicing in May 2020 due to imminent monetary default at borrower's request from the coronavirus pandemic and has now passed its loan maturity date of November 2020. As of the January 2021 remittance date, the loan was last paid through its June 2020 payment date. The loan has recognized a $9.8 million appraisal reduction due to its October 2020 appraised value of $11.4 million, a 75% decline from securitization. The special servicer indicated the loan sponsor, Pyramid, has submitted a loan modification for review.The sole performing loan is the Park Ridge II Apartments Loan ($2.0 million -- 3.6% of the pool), which is secured by a 34,800-square foot (SF), 24-unit multifamily property located in Stafford, VA, approximately 15 miles north of Fredericksburg, VA. As of the January 2021 remittance date, the loan was on the master servicer's watchlist for its upcoming maturity date in February 2021. As of September 2020, the property was 96% leased, unchanged from December 2019 and compared to 100% in December 2018. The loan has amortized 21% since securitization and Moody's LTV and stressed DSCR are 68% and 1.42X, respectively.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. Suzanna Sava Vice President - Senior Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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