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Rating Action:

Moody's affirms three and downgrades three CMBS classes of AHPT 2017-ATRM

18 Sep 2020

Approximately $570 million of structured securities affected

New York, September 18, 2020 -- Moody's Investors Service ("Moody's") affirmed the ratings on three classes and downgraded the ratings on three classes of Atrium Hotel Portfolio Trust 2017-ATRM, Commercial Mortgage Pass-Through Certificates, Series 2017-ATRM. Moody's rating action is as follows:

Cl. A, Affirmed Aaa (sf); previously on Dec 12, 2018 Affirmed Aaa (sf)

Cl. B, Affirmed Aa3 (sf); previously on Dec 12, 2018 Affirmed Aa3 (sf)

Cl. C, Affirmed A3 (sf); previously on Dec 12, 2018 Affirmed A3 (sf)

Cl. D, Downgraded to Ba1 (sf); previously on Dec 12, 2018 Affirmed Baa3 (sf)

Cl. E, Downgraded to B2 (sf); previously on Apr 17, 2020 Ba3 (sf) Placed Under Review for Possible Downgrade

Cl. F, Downgraded to Caa2 (sf); previously on Apr 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade

RATINGS RATIONALE

The ratings on the three most senior P&I classes were affirmed because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, are within acceptable ranges. The ratings on Cl. D, Cl. E and Cl. F were downgraded due to an increase in Moody's LTV as a result of weakening net cash flow (NCF) since securitization in addition to the immediate decline in performance due to the coronavirus outbreak and the uncertainty over the timing and extent of the recovery. We have assumed a significant drop in NCF in 2020, followed by two or more years of improvement in pool performance, resulting in a lower than previously assumed Moody's NCF levels.

The actions conclude the review for downgrade initiated on April 17, 2020.

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.

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, defeasance of the loan or an improvement in loan performance.

Factors that could lead to a downgrade of the ratings include a decline in the performance of the loan, or interest shortfalls.

METHODOLOGY UNDERLYING THE RATING ACTION

The principal methodology used in these ratings was "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. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

DEAL PERFORMANCE

As of the September 15, 2020 distribution date, the transaction's certificate balance remains unchanged at $600 from securitization. The certificates are collateralized by a single floating rate loan backed by a first lien commercial mortgage related to a portfolio of 29 full- and limited-service hotels. The loan's final maturity date is in December 2024. There is mezzanine debt totaling $150 million held outside of the trust.

The properties are located across 16 states and total 7,015 guestrooms. The portfolio operates under nine different flags across three nationally recognized hotel franchises (Hilton Worldwide Holdings, Inc., Marriott International, Inc., and Intercontinental Hotels & Resorts) and one independently managed property. The properties were constructed between 1979 and 2000.

The portfolio's NCF for the trailing twelve month period ending June 2020 was $22.4 MM reflecting the stress from closures and travel ban due to the coronavirus outbreak. However, the portfolio's performance had declined steadily since securitization from a NCF of $74.1 MM in 2018 to $61.6 MM achieved in 2019. The US lodging sector neared its cyclical peak in 2018 and 2019. During this time US hotels experienced slowing RevPAR growth rates and some net cash flow erosions due to expenses increasing faster than revenues. However, due to declining RevPAR the subject portfolio experienced greater declines than those of other comparable hotel pools.

The loan was transferred to special servicing in April 2020 for imminent monetary default related to the impact of COVID and a standstill agreement was executed in May 2020 that included a 3-month payment moratorium though July 2020 with two 30-day period extension options. The agreement required that at the end of the moratorium, accrued but unpaid payment obligations, use of reserves, fees, and advances must be repaid in 12 equal monthly installments. Default notices to the borrower and default/purchase option event notices to mezzanine lenders were sent out on September 2, 2020 when the borrower failed to make the debt service and installment payments per the standstill agreement. Each mezzanine lender has the option to cure the payment defaults or purchase the senior loan.

For full year 2020 NCF, we expect a significant drop due to coronavirus outbreak induced property closures and travel restrictions that were put into effect in the first half of the year and negative impact from those measures. In the foreseeable future, we expect demand for lodging in leisure drive-to destinations to lead the recovery, followed by the return of corporate transient segment. Due to the length and the magnitude of the disruption, we do not expect hotel performance to return to pre-COVID levels within the next 18 months, and the pace of recovery to vary depending on the property's primary market segment and location.

As a result of the standstill agreement, the loan status is current as of the September distribution date; however, there are outstanding P&I and property protective advances totaling approximately $27.5 million as the borrower's last debt service payment date was made in April 2020. The first mortgage balance represents a Moody's stabilized LTV of 115%. Moody's first mortgage stressed debt service coverage ratio (DSCR) is 1.06X. However, these metrics are based on return of travel demand for leisure and corporate travel and normalized operation after 24 to 36 month of stabilization period. The downgrade of the ratings on Cl. D, Cl. E and Cl. F take into account volatility and uncertainty of the pool's near-term performance. There are no outstanding interest shortfalls and no losses as of the current distribution date.

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_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.

EunJee EJ Park
VP - Senior Credit Officer
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

No Related Data.
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