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Rating Action:

Moody's places 194 classes of bonds issued by 50 US conduit commercial mortgage backed securities on review for downgrade

17 Apr 2020

Approximately $4.4 billion of structured securities affected

New York, April 17, 2020 -- Moody's Investors Service, ("Moody's") has placed 159 principal and interest (P&I) tranches, 32 interest-only (IO) classes and three exchangeable classes from 50 US conduit commercial mortgage-backed securitizations (CMBS) deals on review for possible downgrade. The bonds are backed by pools of commercial real estate loans originated by multiple issuers.

RATINGS RATIONALE

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL422767 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

The rating action reflects our expectations of increased risk of default and cash flow deterioration among loans backed by property types that are most susceptible to the coronavirus pandemic's impact on travel and consumption as well as damage to the broader economy. The tranches placed on review as part of this action are vulnerable to changes in credit quality based on cash flow disruptions from exposure to hotel and retail loans, in particular lower quality regional malls that have already experienced declining performance. The tranches may also be affected by significant exposure to oil metros and/or near-term loan maturities in the next 12 months. This action takes into account the credit support of each rated tranche in relation to Moody's loan-to-value (LTV), debt service coverage (DSCR) ratios, the transaction's Herfindahl Index (Herf) and previously troubled loans to which Moody's has assumed a high probability of default. The increased uncertainty associated with the property types and markets described above has a greater potential impact on the ratings of classes within the 2010-14 vintages conduit transactions due to the lower credit enhancement of the tranches we rate and/or their exposure to upcoming refinancing risk from maturing loans. The ratings of the tranches placed on review generally range from Ca (sf) to A1 (sf) and represents approximately 2%, by balance, of the outstanding tranches we rate on conduit transactions. The two Aa3 (sf) rated tranches on review are exchangeable classes that reference multiple principal and interest classes. Tranches with lower credit enhancement are at higher risk of interest shortfalls and potential losses from defaulted loans. The placement of the investment-grade classes on review relates to their significant exposure to the above criteria. We will continue to monitor the impact on the universe of US conduit CMBS that we rate.

Our analysis has considered the increased uncertainty relating to the effect of the coronavirus outbreak on the US economy as well as the effects that the announced government measures put in place to contain the virus, will have on the performance of commercial real estate. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. It is a global health shock, which makes it extremely difficult to provide an economic assessment. 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.

Hotels are the commercial real estate (CRE) sector hardest hit by the immediate economic fallout from the coronavirus outbreak, given its sensitivity to consumer demand and sentiment. Hotels have already experienced a severe decline in revenue per available room (RevPAR) in March and early April due to voluntarily and mandated quarantines throughout the US. According to STR, Inc.'s Weekly Hotel Review for the week ending April 11, 2020, US RevPAR declined by over 80% on a year-over-year basis. As of the March 2020 remittance statements, the hotel exposure for these transactions ranged from 0% to 33% of the aggregate pooled balance, with a weighted average exposure of 8%. In the determination of this action, we applied additional cash flow haircuts and increased cap rates to hotel properties, particularly those that have exhibited declining revenue and/or net operating income since the loan was securitized.

The non-essential retail sector has also been greatly affected by the coronavirus outbreak due to the impact of temporary store closures and reduced traffic on both landlords and retail tenants. Excluding defeasance, the impacted transactions have significant exposure to retail properties with the exposure exceeding 60% for certain transactions. Loans secured by regional malls and large outlet center properties collectively can represent up to 50% or more of the transaction balance, with a weighted average exposure of 17% across the 50 affected transactions. 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 net operating income (NOI). Class B or lower quality malls in secondary locations have historically exhibited higher cash flow volatility and loan loss severity, as well as higher refinancing risk, than other major property types.

The ratings on the IO classes whose referenced classes include these P&I classes were placed on review for possible downgrade.

The ratings on the exchangeable classes whose referenced classes include these P&I classes were placed on review for possible downgrade.

During the review period, Moody's will evaluate the performance of each transaction's underlying loans, taking into account cash flow interruptions and loan default risks associated with temporary closures and reduced foot traffic and occupancy for loans backed by hotel and retail properties. Our individual transaction reviews will also include an analysis of the impact on performance across all property types. Moody's will assess the potential severity and duration of the decline in occupancies and rental revenues, and its impact on the affected tranches.

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 review for downgrade, an upgrade on the impacted classes is unlikely in the foreseeable future until there is a significant amount of loan paydowns or amortization and/or an increase in the pool's share of defeasance.

Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool (including an increase in defaulted and/or specially serviced loans), an increase in realized and 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.

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.

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.

Christopher Bergman
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

Keith Banhazl
MD - Structured Finance
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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