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Rating Action:

Moody's assigns provisional ratings to AMSR 2021-SFR1 Trust

04 May 2021

New York, May 04, 2021 -- Moody's Investors Service, ("Moody's") has assigned provisional ratings to four classes of certificates secured by mortgages on 1,706 single-family properties owned by Amherst Single Family Residential Partners VI, LP ("Amherst VI").

The complete rating action is as follows:

Issuer: AMSR 2021-SFR1 Trust

Cl. A, Assigned (P)Aaa (sf)

Cl. B, Assigned (P)Aa3 (sf)

Cl. C, Assigned (P)A3 (sf)

Cl. D, Assigned (P)Baa3 (sf)

RATINGS RATIONALE

Overview

Our advance rate for this transaction at stresses consistent with a Aaa rating level is 30.75%. Moody's uses the advance rate to determine whether the asset value is sufficient to support a targeted rating level given the size of the transaction's liabilities.

The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in US economic activity.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Key transaction features

Weak structural features: The transaction structure has a multi-tier DSCR test and a payment-in-kind (PIK) feature for class F and class G similar to the previous transaction AMSR 2020-SFR5 Trust, where the PIKable certificates can receive interest payment even before the multi-tier DSCR test kicks in. In our opinion, this structure is slightly credit negative because in several scenarios, available funds in the cash collateral can be lower. In an event of default, funds in this account can act as additional credit enhancement to the certificates. Our advance rates reflect a small adjustment for this feature.

High Leverage: The total leverage (including Class H) of 93.5% in AMSR 2021-SFR1 is lower than 97.9% in AMSR 2020-SFR5 but higher than 92.0% in AMSR 2020-SFR4. The sponsor will retain Class H, which is about 8.00% of total BPO value, for the term of the transaction. We made a negative adjustment to our recoveries to account for this increased risk.

Excess Collateral Release: This deal will include an Excess Collateral Release (ECR) feature whereby the sponsor can remove properties without prepaying the loan balance, or paying yield maintenance or a release premium to the trust. The ECR will be subject to rating agency confirmation, or RAC, that the ratings will not be withdrawn or downgraded as a result of the exercise of such feature. The ECR will also have to satisfy certain LTV ratio requirement as well as geographic diversity and rents and cash flow tests. Although ECR is subject to rating agency confirmation and certain other tests, our recovery analysis took into consideration this feature.

Voluntary Substitution: The securitization incorporates up to 5% voluntary substitution (by property count) over the life of the transaction. Voluntary substitution of properties is subject to a number of conditions including the aggregate property value of the substitute properties will at least be equal or higher than the higher of current property value or closing date property value of the replaced properties, and the underwritten net cash flow of the substitute properties for the trailing twelve months commencing on the next calculation date is at least equal or greater than the underwritten net cash flow as of the most recent calculation date. Having flexibility to remove or substitute properties from the securitization is valuable to a sponsor as it allows the sponsor to efficiently manage its overall portfolio. However, an operator's use of substitution to acquire a property from the securitization could otherwise reduce the incentive to acquire properties through the premium release mechanism. Our analysis incorporates the reduced premium release incentives, potential adverse selection of properties, potential increase in geographic concentration and limited independent third party diligence on the substitute properties.

Insurance: This transaction's properties are covered by a blanket insurance policy that also covers other properties in Amherst' portfolio. Additionally, the borrower's blanket policy provides for a maximum deductible equal to 5% of the total insurable value (TIV) of affected properties per occurrence of named windstorm and a maximum deductible equal to 10% of the TIV of affected properties per occurrence of earthquake. We increased our loss expectation on the higher-rated notes to account for less-than expected insurance coverage.

Recovery Analysis

The Final Recovery Value, which varies by rating levels, is calculated through the following steps.

1. For the 1,706 newly acquired properties, instead of using the acquisition price the borrower paid to a wholly owned subsidiary of the sponsor, which was determined by a cap-rate, we determined Moody's Value by utilizing the most recent third-party BPO values, to which we applied a haircut because the value was not based on a full appraisal by a licensed appraiser, a process we consider to be most reliable. The haircut we applied was higher than some other SFR transactions as we did not have the benefit of having original acquisition price and post-acquisition renovation costs of the properties. The cumulative BPO on the properties is approximately $392 million. We determined the initial Moody's Value to be $313.5 million.

2. As the borrower can substitute properties, Moody's assumed that a lower percentage of these properties will be sold out of the transaction at full market value before a borrower default, netting proceeds equal to the allocated loan amounts plus a pre-determined premium on those properties.

3. To account for the potential adverse selection and increased geographic concentration in certain markets, in the disposition of the properties remaining in the pool after a default, Moody's applied a home price depreciation factor to the properties' value, ranging from 30% to 50% of the Moody's value at a Aaa level, depending on the MSA. Our home price depreciation assumptions are informed by, among other things, a review of the housing markets in the key MSAs, and geographic concentration as measured by the effective number of MSAs. We further stressed the MSA concentration risk due to voluntary substitution and potential increase in geographic concentration.

4.We then calculated the revenue and expense adjustments for the distressed properties that were sold. The revenue would come from the in-place rental income on the portion of properties that were still rented while awaiting liquidation, and the expenses, from in-place expenses, including maintenance, taxes, servicing, and other fees and costs on the properties. Both the revenues and costs depend heavily on the assumed timelines necessary for foreclosure and liquidation. The foreclosure timeline will depend on whether the trust forecloses on the equity pledge from the borrower, which is faster, or on the liens from the mortgages. The length of a property foreclosure itself depends in part on whether the property is in a judicial or non-judicial foreclosure state. In our Aaa stress scenario, we assume that the trust pursues the longer and costlier mortgage foreclosure route; in our Baa3 stress scenario, we assume that it pursues the quicker equity foreclosure route. We calculated revenues and expenses in three additional steps:

5. Under its Aaa stress scenario, Moody's assumed that the total cost required to maintain all the properties remaining in the pool after default, including real estate taxes, property management fees, vacancy, home owners association fees, insurance, repairs, and sales and marketing, would stretch for 48 months while a portion of the properties would generate income for 38 months. Moody's stress for foreclosure timeline for this transaction is lower than a typical RMBS transaction because Moody's expects the foreclosure process to be quicker since the trust does not have to foreclose on individual borrowers; instead, for each loan, it will foreclose either on the special purpose vehicle borrower itself or the properties owned by a single entity.

6. Moody's estimated additional foreclosure costs, which included fixed legal costs, special servicing fees of 0.25% of the loan amount, special servicing liquidation fees of 0.75% of the property value, and transfer taxes.

7. Finally, Moody's assumed that the master servicer will continue to advance the interest (to the extent deemed recoverable) on the certificates until the properties are liquidated, and estimated the interest accrued on the servicer advances.

Master and special servicer

A highly rated master servicer, Midland Loan Services, a division of PNC Bank, N.A. (long-term senior unsecured A2 negative, long-term bank deposits Aa2 negative, bca a2) is responsible for advancing timely payments of interest on the loan to the extent deemed recoverable. The servicer will also receive monthly updates on the status of every property backing the transaction. Having a special servicer that can step in to manage the portfolio to maximize recoveries for the certificate holders in the event of a borrower default is credit positive.

Of note, the master servicer will only be advancing interest payments to class A through class E2 and not class F, class G and class H. In addition, servicing fees will be calculated based on outstanding principal balance minus any deferred interest.

Midland Loan Services will also be the special servicer for this transaction and will be responsible for servicing and administering the loan in the event of default or in the case of a reasonably foreseeable default that could give rise to the transfer of servicing to the special servicer and of any foreclosed collateral. Midland is an integral part of PNC's real estate finance business, and has more than 20 years of experience as a commercial mortgage master, and primary and special servicer for CMBS securitizations, government sponsored enterprises and institutional investors.

Although we deem the servicing arrangement to be adequate, we applied a negative adjustment to our recoveries to account for the concentration risk of having a limited number of available servicers in SFR securitizations.

Cash flow analysis

Moody's weighted average adjustments to the pool's underwritten net cash flows -22.6%. The Moody's debt service coverage ratio is 1.53x (based on Moody's assumed starting interest rate). For more details on Moody's CMBS approach to analyzing rental cash flows, refer to "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS," published in May 2020. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Factors that would lead to an upgrade or downgrade of the ratings:

UP

Moody's would consider upgrading the transaction or some of its tranches if, for example, properties underlying the portfolio were to appreciate substantially and the property conditions were to remain well maintained.

DOWN

Moody's would consider downgrading the transaction if the transaction were to breach its debt yield trigger. Additionally, breaches of certain loan covenants could lead to an event of default in the transaction and, if unremedied, a downgrade. Moody's will also monitor the transaction's portfolio mix for any unexpected changes. Unexpected negative changes could result from unusual patterns in the properties that are released by a sponsor as contemplated by the transaction documents. Also, where available, changes in rent renewal and lease turnover rates and time to re-rent could indicate performance issues.

The principal methodology used in these ratings was "Single-Family Rental Securitizations Methodology" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1214103. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1276137.

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 quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

Max Sauray
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

Padma Rajagopal
Vice President - Senior Analyst
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.
© 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.

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