DBRS Upgrades One Class and Confirms All Other Classes of MSC Mortgage Securities Trust, 2012-C4

DBRS Limited (DBRS) has today upgraded the following class of MSC Mortgage Securities Trust, 2012-C4:

-- Class D from BBB (high) (sf) to A (low) (sf)

DBRS has also confirmed the following classes of MSC Mortgage Securities Trust 2012-C4 as follows:

-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class H.

The rating upgrade to Class D reflects the increased credit support to the bond as a result of successful loan repayment and scheduled loan amortization as well as the performance of the underlying collateral. The collateral consists of 38 fixed-rate loans secured by 77 commercial properties. As of the January 2017 remittance, there has been collateral reduction of 24.4% since issuance with a current outstanding trust balance of $829.4 million. The top 15 loans reported a weighted-average (WA) YE2015 debt service coverage ratio (DSCR) of 1.72 times (x), representative of a WA improvement over the DBRS underwritten figures of 16.5% and a WA debt yield of 12.6%. The top 15 loans reported a WA 3.5% improvement in YE2015 net cash flow compared with YE2014 figures. According to partial-year 2016 reporting, positive cash flow trends are continuing.

The pool is concentrated with retail properties, which represent approximately 50% of the pool balance and include two regional malls in the Top 15, both of which are anchored by relatively weak tenants in Macy’s, Sears and JC Penney, all of which have experienced declining sales and store closures in recent times. One loan in the Top 15 was affected by recent announcements of Sears closing 150 stores nationwide; however, mall operator and sponsor, Pennsylvania Real Estate Investment Trust (PREIT), successfully found replacement tenants for the entire Sears space.

As of the January 2017 remittance, there is one loan in special servicing, representing 2.3% of the pool balance, and five loans on the servicer’s watchlist, representing 14.4% of the pool balance. The specially serviced loan is expected to resolved in the near future, which will cause a realized loss to the trust. The loss is expected to be contained to the unrated bond, Class H.

At issuance, DBRS shadow-rated the ELS Portfolio (Prospectus ID#5, 7.3% of the pool balance) loan as investment grade. DBRS has today confirmed that the performance of the loans remains consistent with investment-grade loan characteristics.

The ratings assigned to Classes C, E, F and G materially deviate from the higher ratings implied by the Large Pool Multi-borrower Parameters. DBRS considers this to be a methodology deviation when there is a rating differential of three or more notches between the assigned rating and the rating implied by the Large Pool Multi-borrower Parameters; in this case, the sustainability of loan performance trends were not demonstrated and, as such, was reflected in the ratings.

DBRS has provided updated loan level commentary and analysis the watchlisted loans and for the largest 15 loans in the pool in the DBRS CMBS IReports platform. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please log into DBRS CMBS IReports at www.ireports.dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.