Rating Action: Moody's downgrades one, confirms one and affirms eleven classes of WFRBS 2012-C8
Global Credit Research - 15 Jul 2020
Approximately $888 million of structured securities affected
New York, July 15, 2020 -- Moody's Investors Service, ("Moody's") has downgraded the ratings on one class, confirmed the ratings on one class and affirmed the ratings on eleven classes in WFRBS Commercial Mortgage Trust 2012-C8, Commercial Mortgage Pass-Through Certificates, Series 2012-C8 as follows:
Cl. A-3, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)
Cl. A-FL, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)
Cl. A-FX, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa1 (sf); previously on Aug 15, 2019 Upgraded to Aa1 (sf)
Cl. C, Affirmed A1 (sf); previously on Aug 15, 2019 Upgraded to A1 (sf)
Cl. D, Affirmed A3 (sf); previously on Aug 15, 2019 Upgraded to A3 (sf)
Cl. E, Affirmed Baa3 (sf); previously on Aug 15, 2019 Affirmed Baa3 (sf)
Cl. F, Confirmed at Ba2 (sf); previously on Apr 17, 2020 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa1 (sf); previously on Apr 17, 2020 B2 (sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Aug 15, 2019 Affirmed Aaa (sf)
Cl. X-B*, Affirmed Aa1 (sf); previously on Aug 15, 2019 Upgraded to Aa1 (sf)
* Reflects interest-only classes
The ratings on the nine P&I classes were affirmed and one P&I class was confirmed 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 one P&I class, Cl. G, was downgraded due to the decline in performance and upcoming refinance risk of loans secured by regional malls including the Northridge Fashion Center (8.2% of the pool) and Town Center at Cobb (6.7% of the pool).
The ratings on the two IO classes were affirmed based on the credit quality of their referenced classes.
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 5.5% of the current pooled balance, compared to 2.3% at Moody's last review. Moody's base expected loss plus realized losses is now 3.9% of the original pooled balance, compared to 1.7% 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 interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in May 2020 and available at https://www.moodys.com/research/Approach-to-Rating-US-and-Canadian-ConduitFusion-CMBS--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 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/research/Approach-to-Rating-US-and-Canadian-ConduitFusion-CMBS--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/research/Moodys-Approach-to-Rating-Structured-Finance-Interest-Only-IO-Securities--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.
As of the June 17, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 28% to $933 million from $1.3 billion at securitization. The certificates are collateralized by 67 mortgage loans ranging in size from less than 1% to 14.5% of the pool, with the top ten loans (excluding defeasance) constituting 57% of the pool. Twenty-four loans, constituting 19.6% 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 14, compared to 15 at Moody's last review. As of the June 2020 remittance report, loans representing 91% 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 7% were between 30 -- 59 days delinquent. Six loans, constituting 10% of the pool, are on the master servicer's watchlist, of which one loan, representing 6.7% 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. One loan has been liquidated from the pool, resulting in a minimal loss to the trust. One loan, constituting 0.7% of the pool, is currently in special servicing. The specially serviced loan is the Springhill Suites - San Angelo Loan ($6.6 million -- 0.7% of the pool), which is secured by which is secured by a 96-key limited service hotel, built in 2010 and located in San Angelo, Texas. The loan transferred to the special servicer in May 2016 for imminent monetary default, was foreclosed upon in December 2017 and is now REO. A property improvement plan (PIP) was completed in 2018 and the asset manager continues to work with the property manager to monitor coronavirus impact on the property and develop an updated business plan. Moody's has also assumed a high default probability for five poorly performing loans, constituting 9.8% of the pool. The largest troubled loan is the Town Center at Cobb Loan ($62.9 million -- 6.7% of the pool), which represents a pari passu portion of a $180 million mortgage loan. The loan is secured by a 560,000 square foot (SF) portion of a 1.3 million SF super-regional mall located in Kennesaw, Georgia. The property, which is sponsored by Simon Properties, opened in 1985, was expanded in 1996, and renovated in 2009-2011. The property is anchored by a Macy's, Macy's Furniture, JC Penney, Sears, and Belk. All of the anchors own their own boxes, with the exception of Belk and a portion of the JC Penney space. Sears will be closing its store at this property. Property performance has declined over the past three years, and the year-end 2019 performance was below underwritten levels primarily due to a decline in base rents and expense reimbursements. The occupancy of the collateral component of the property is 85% as of March 2020, compared to 84% in December 2019. The loan is past due the April 2020 payment, and has requested relief as a result of the coronavirus outbreak. The second largest troubled loan is the Laguna Pavilion Loan ($10.1 million -- 1.1% of the pool), which is secured by a 64,811 SF retail property located in Elk Grove, CA. Property performance has declined since 2017 and has two upcoming tenant bankruptcy related store closures. Pier 1 (13.93% of net rentable area (NRA)) and Tuesday Morning (13.42% of NRA) have filed for bankruptcy and will be vacating the property.
Moody's has estimated an aggregate loss of $35.8 million (a 36% expected loss on average) from the specially serviced and troubled loans.
Moody's received full year 2019 operating results for 93% of the pool, and full or partial year 2020 operating results for 59% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 93%, compared to 88% 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 20% 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 1.60X and 1.20X, respectively, compared to 1.67X and 1.24X 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 30% of the pool balance. The largest loan is the 100 Church Street Loan ($135.1 million -- 14.5% of the pool), which represents a pari passu portion of a $207.1 million mortgage loan. The loan is secured by a 1.1 million (SF), Class B office property in downtown Manhattan. As of March 2020, the property was 98% leased, largely unchanged since 2019 and up from 84% at securitization. Property performance has improved since securitization due to higher revenues and the 2019 reported NOI was 52% higher than 2012. The loan has amortized 10% since securitization and Moody's LTV and stressed DSCR are 88% and 1.11X, respectively, compared to 89% and 1.09X at Moody's last review. The second largest loan is the Northridge Fashion Center Loan ($76.7 million -- 8.2% of the pool), which represents a pari passu portion of a $211.7 million mortgage loan. The loan is secured by a 644,000 SF portion of a 1.5 million SF super-regional mall located in Northridge, California. The property is sponsored by Brookfield Property Partners following their acquisition of General Growth Properties. The mall's non-collateral anchors include Macy's, Macy's Men's and Home, and JC Penney. The non-collateral anchor space formerly occupied by Sears went dark in 2018. As of December 2019, the in-line space was 96% leased, compared to 98% in December 2018. However, excluding Sears, the total property was 80% occupied as of December 2019, compared to 81% as of December 2018. Property performance declined in 2019 due to a decrease in collateral occupancy and increased expenses but has generally improved since securitization due to higher rental revenues. The loan has amortized 14% since securitization and Moody's LTV and stressed DSCR are 96% and 1.08X, respectively, compared to 87% and 1.12X at Moody's last review. The third largest loan is the BJ's Portfolio Loan ($68.1 million -- 7.3% of the pool), which is secured by the first mortgage liens on six properties consisting of five retail stores of BJ's Wholesale Club and one industrial center serving as a BJ's Distribution facility. The portfolio is located in five different states: Massachusetts, Pennsylvania, Maryland, New Jersey and Florida. The portfolio is 100% occupied by a single tenant, BJ's Wholesale Club, Inc. with all lease expirations in September 2031. Due to the single tenant exposure, Moody's valuation reflects a lit/dark analysis. Moody's LTV and stressed DSCR are 98% and 1.13X, respectively, compared to 99% and 1.12X at Moody's 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 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
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