Approximately $1.04 billion of structured securities affected
New York, October 12, 2021 -- Moody's Investors Service, ("Moody's") has assigned provisional
ratings to four classes of CMBS securities, issued by BX Commercial
Mortgage Trust 2021-XL2, Commercial Mortgage Pass-Through
Certificates, Series 2021-XL2:
Cl. A, Assigned (P)Aaa (sf)
Cl. B, Assigned (P)Aa3 (sf)
Cl. C, Assigned (P)A3 (sf)
Cl. D, Assigned (P)Baa2 (sf)
RATINGS RATIONALE
The certificates are collateralized by the borrower's fee and leasehold
interests in 121 primarily industrial properties located across 10 states.
Our ratings are based on the credit quality of the loans and the strength
of the securitization structure.
Moody's approach to rating this transaction involved the application
of our Large Loan and Single Asset/Single Borrower CMBS methodology.
The rating approach for securities backed by a single loan compares the
credit risk inherent in the underlying collateral with the credit protection
offered by the structure. The structure's credit enhancement is
quantified by the maximum deterioration in property value that the securities
are able to withstand under various stress scenarios without causing an
increase in the expected loss for various rating levels. In assigning
single borrower ratings, we also consider a range of qualitative
issues as well as the transaction's structural and legal aspects.
The portfolio contains approximately 17,007,880 SF of aggregate
net rentable area ("NRA") comprised primarily of warehouse, light
industrial and bulk warehouse facilities. The portfolio is geographically
diverse as the properties are located across 10 states and 16 markets.
The top five market concentrations by NRA are Los Angeles (28 properties;
18.4% of NRA), Phoenix (15 properties; 16.8%
of NRA), Atlanta (10 properties; 14.5% of NRA),
Dallas-Fort Worth (26 properties; 12.9% of NRA)
and Inland Empire (4 properties; 8.8% of NRA).
The portfolio properties are primarily located in global gateway markets
and generally situated within close proximity to major transportation
arteries.
Construction dates for properties in the portfolio range between 1964
and 2018, with a weighted average year built of 1992. Property
sizes for assets range between 10,000 SF and 612,104 SF,
with an average size of approximately 140,561 SF. Clear heights
for properties range between 9 feet and 38 feet, with a weighted
average, clear height for the portfolio of approximately 26 feet.
As of August 11, 2021, the portfolio was approximately 95.3%
leased to over 400 tenants.
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.
The Moody's first mortgage DSCR is 2.04x and Moody's first
mortgage stressed DSCR at a 9.25% constant is 0.49x.
Moody's DSCR is based on our stabilized net cash flow.
Moody's LTV ratio for the first mortgage balance of $2.185
billion is 172.2%. Taking into consideration the
additional $305.0 million mezzanine loan, the total
debt Moody's LTV would increase to 196.2%.
Moody's LTV Ratio is based on our Moody's Value.
Moody's also grades properties on a scale of 0 to 5 (best to worst) and
considers those grades when assessing the likelihood of debt payment.
The factors considered include property age, quality of construction,
location, market, and tenancy. The pool's weighted
average property quality grade is 0.75.
Notable strengths of the transaction include: the proximity to global
gateway markets, infill locations, geographic diversity,
tenant granularity, recent leasing and experienced sponsorship.
Notable concerns of the transaction include: the high Moody's loan-to-value
ratio (LTV), tenant rollover, age, cash out, floating-rate/interest-only
mortgage loan profile and certain credit negative legal features.
Moody's rating approach considers sequential pay in connection with
a collateral release as a credit neutral benchmark. Although the
loans' release premium mitigates the risk of a ratings downgrade due to
adverse selection, the pro rata payment structure limits ratings
upgrade potential as mezzanine classes are prevented from building enhancement.
The benefit received from pooling through cross-collateralization
is also reduced.
The principal methodology used in rating all 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.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Please note that a Request for Comment was published in which Moody's
requested market feedback on potential revisions to one or more of the
methodologies used in determining these Credit Ratings. If the
revised methodologies are implemented as proposed, the Credit Ratings
referenced in this press release might be positively affected.
Request for Comments can be found on the rating methodologies page on
www.moodys.com.
Moody's approach for single borrower and large loan multi-borrower
transactions evaluates credit enhancement levels based on an aggregation
of adjusted loan level proceeds derived from our Moody's loan level LTV
ratios. Major adjustments to determining proceeds include leverage,
loan structure, and property type. These aggregated proceeds
are then further adjusted for any pooling benefits associated with loan
level diversity, other concentrations and correlations.
Factors that would lead to an upgrade or downgrade of the rating:
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 may indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously anticipated.
Factors that may cause an upgrade of the ratings include significant loan
pay downs or amortization, an increase in the pool's share of defeasance
or overall improved pool performance. Factors that may cause a
downgrade of the ratings include a decline in the overall performance
of the pool, loan concentration, increased expected losses
from specially serviced and troubled loans or interest shortfalls.
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_1305281.
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.
Moody's weights the impact on the rated instruments based on its
assumptions of the likelihood of the events in such scenarios occurring.
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_1288435.
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.
Blair Coulson
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
Eun Choi
Senior Vice President
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
