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Rating Action:

Moody's downgrades 156 classes and places 15 classes under review for possible downgrade issued by 37 US conduit commercial mortgage backed securities

23 Apr 2021

Approximately $6.2 billion of structured securities affected

New York, April 23, 2021 -- Moody's Investors Service ("Moody's") has downgraded 119 principal and interest (P&I), 26 interest-only (IO) and 11 exchangeable classes from 36 US conduit commercial mortgage-backed securitizations (CMBS) and placed eleven P&I, one exchangeable and three IO classes under review for possible downgrade from two US conduit CMBS transactions.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL444578 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL444578 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Principal Methodologies

Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

For each CMBS transaction with tranches impacted by today's actions, the List of Affected Credit Ratings also identifies the associated base expected loss, the loans primarily contributing to the rating action and, as of the March 2021 remittance reports, the share of (1) total specially serviced loans, (2) loans secured by regional mall loans, (3) delinquent loans secured by regional malls, and (4) appraisal reduction amounts.

The rating downgrades on the 119 P&I classes were prompted primarily by increased loss expectations and higher interest shortfall risk to the transactions due to the continued cash flow and value deterioration for specially serviced, delinquent or otherwise poorly performing loans backed by lower quality regional malls. As the US economy improves, consumer spending is exhibiting strong recovery, but weaker consumer traffic among these properties continues to weigh on their performance. For regional mall loans contributing to this action that have reported at least six months of annualized 2020 NOI, the 2020 NOI was 16% lower, on average, than full-year 2019 NOI. More than half of these properties reported a decline in annualized 2020 NOI of 10% or greater compared to full-year 2019. The continued and possibly long-lasting performance deterioration among Class B-or-lower quality regional malls has caused borrowers of loans in CMBS backed by such malls to focus their resources on the higher quality assets within their portfolios. As a result, borrowers of certain poorly performing CMBS loans have indicated that they intend to cooperate with foreclosure proceedings and/or are unwilling to inject additional cash to support these assets. For regional mall assets that are undergoing foreclosure or are already classified as real estate owned (REO), we anticipate the acceleration of dispositions in the next 12 months and the ultimate liquidations of these assets may result in significant losses.

The higher loss expectations for these securitizations also reflect further deterioration of hotel and office properties that even before the onset of the COVID-19 pandemic suffered from declining revenue or other credit risks. The overall exposure to delinquent and specially serviced loans across these transactions has increased significantly as a result of the pandemic. As of the March 2021 remittance reports, the share of specially serviced loans secured by all property types for the impacted transactions averaged 20% and ranged up to 42% of their respective pooled transaction balances. The downgrades also reflect heightened refinancing risk among these poorly performing loans, in particular the seven 2011 transactions in which nearly all of the remaining loans have maturity dates in the next six to eight months.

The ratings on the 26 IO classes were downgraded due to a decline in credit quality of their referenced classes. The ratings on the 11 exchangeable classes were downgraded due to a decline in credit quality of their referenced exchangeable classes.

The ratings on eight P&I classes in Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11 were placed on review for possible downgrade due to their significant exposure to three delinquent regional mall loans and one hotel loan and the uncertainty around the potential resolution strategy and ultimate recovery on these assets. Moreover, the specially serviced loans, which represent nearly 40% of the pool, are all 60 or more days delinquent and are secured by two regional malls (31.5%) and two poorly performing hotel properties that were already experiencing declining NOI.

The ratings on seven P&I classes in GS Mortgage Securities Trust 2011-GC5 were placed on review for possible downgrade due to uncertainty regarding the upcoming maturity risk for loans secured by regional mall properties with declining performance, as well as significant exposure to loans secured by other retail properties. The remaining loans in the pool all mature on or before August 2021.

The downgraded tranches included in this action represent approximately 2% by balance and 5% by count of the outstanding tranches Moody's rates in CMBS conduit transactions and are from 35 transactions that were issued between 2011 and 2016, and one transaction issued in 2006 in which a regional mall represents 94% of the remaining collateral. One additional transaction, issued in 2013, contains tranches that were placed on review for possible downgrade as part of this action. Moody's had previously downgraded ratings on at least one principal and interest tranche in 31 of the 37 impacted conduit transactions. These past downgrades were predominantly due to the poor performance of certain loans backed by regional malls.

Loans secured by regional malls represent at least 5% and up to 40% or more of the 37 CMBS conduit transactions included in this action (by current pool balance), with the average exposure across these transactions of approximately 25%. Most of the regional mall loans affected by this rating action already exhibited year-over-year NOI declines in 2019, and nearly all of these properties faced further NOI declines in 2020. Furthermore, as of the March 2021 remittance report, exposure to specially serviced and 60 or more days delinquent loans secured by regional malls represents up to 38% of the current pool balance, with an average exposure of 15% and 8%, respectively. Several lower quality regional mall loans are able to cover monthly debt service payments during the term, however, certain loans may face maturity defaults if borrowers are unwilling to contribute additional equity to refinance at loan maturity. We expect the greatest impact on transactions with significant exposure to non-dominant regional malls that have already exhibited weakening performance, as indicated by declines in tenant sales, in-line occupancy and/or NOI.

For the impacted transactions, the regional mall loans identified as the primary driver for the rating actions are typically the largest contributors to deal-level anticipated losses. Our loss assumptions consider i) historical revenue and NOI trends, ii) reported tenant sales (if available), iii) location and competition and iv) other market data. For regional mall loans liquidated from CMBS conduit transactions since 2017, the weighted average loss severity has been above 75%. There is a limited universe of potential buyers for distressed regional malls and the conversion to alternative use of a failed regional mall often requires a significant equity contribution. Additionally, value preservation for an underperforming mall has historically been difficult as shifts to alternative uses typically yield significantly lower rents. These factors have led to a lack of liquidity in the market for distressed regional malls and may also limit servicer resolution strategies and contribute to elevated realized losses upon disposition.

Moody's base expected loss plus realized losses has increased by an average of 2% of the original pooled balance across impacted transactions compared to their respective prior 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.

Furthermore, significant appraisal reductions have been recognized on many defaulted loans secured by regional malls and other asset types. As of the March 2021 remittance statements, 33 loans backed by regional malls across the impacted transactions have recognized appraisal reductions, of which 20 regional mall loans have recognized an appraisal reduction in excess of 40% of their respective loan balance. As a result of the appraisal reductions, interest shortfalls have increased across the transactions exposed to these severely delinquent loans. Moody's expects interest shortfalls on many of these transactions to increase as updated appraisals are received or loan modifications are executed. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.

Additional interest shortfall risk may be evident for the remaining senior classes within transactions that rely on paydowns from the remaining poorly performing or delinquent specially serviced loans. The positive impact of increased credit support for the remaining senior classes could be offset by the poor credit quality of remaining loans in the pool as adverse selection plays out, particularly if all or nearly all of the remaining loan balance is in special servicing.

The non-essential retail sector, particularly regional malls, has been greatly affected by the coronavirus outbreak as a result of temporary store closures and reduced store traffic due to health and safety concerns. Combined with higher online retail sales, these factors have caused higher vacancies in regional malls, with store closures from corporate bankruptcies and overall reductions in store counts accelerating. Critically, the shift to online shopping is impacting Class B or lower quality regional malls particularly hard. Moody's expects that occupancy rates and revenue will remain under pressure due to continued weakness in certain tenant sectors and several retailers' rationalizing their physical footprints. Department stores, which serve as the anchors for many of these CMBS assets, have been among the hardest-hit in the retail industry during the pandemic, while stress in the experiential and entertainment segment (such as movie theaters) has further reduced the number of replacement tenants available to backfill vacated department stores and other large spaces.

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 commercial real estate from a gradual and unbalanced recovery in US economic activity. 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.

Given the downgrades, an upgrade on the impacted classes is unlikely in the foreseeable future until there is a significant increase in performance, loan paydowns or amortization and/or an increase in defeasance.

Factors that could lead to a downgrade of the ratings include further declines in loan or pool performance, decline in loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or increased interest shortfalls.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL444578 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Endorsement

• Lead Analyst

• Releasing Office

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.

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 below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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.

Rhett Terrell
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

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.
© 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.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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