DBRS Morningstar Confirms All Classes of WFRBS Commercial Mortgage Trust 2012-C10, Two Trends Changed to Negative

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C10 issued by WFRBS Commercial Mortgage Trust 2012-C10:

-- Class A-3 at AAA (sf)
-- Class A-FL at AAA (sf)
-- Class A-FX at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable, except for Classes E and F, for which the trends have changed to Negative from Stable given DBRS Morningstar’s outlook for the pool’s concentration of regional malls located in secondary or tertiary markets that have recently exhibited performance declines and/or anchor losses.

As of the February 2020 remittance, there were four loans, representing 18.8% of the pool, secured by malls. Based on the annualized Q3 2019 figures, those loans reported a weighted-average (WA) amortizing debt service coverage ratio (DSCR) of 1.24 times (x), reflecting a 35.3% net cash flow (NCF) decline from the DBRS Morningstar NCF figures derived at issuance. The pool as a whole is concentrated by loans secured by retail properties (48.9% of the pool), which is particularly noteworthy given the Coronavirus Disease (COVID-19) outbreak of 2020 and the impact to retail traffic nationwide as cities and governors, as well as company chief executive officers and property owners alike, have taken measures to address coronavirus’s spread by ordering stores and restaurants closed.

The pool consisted of 69 of the original 85 loans with collateral reduction of 20.5% since issuance as of the February 2020 remittance. There are 13 loans representing 6.3% of the pool that are fully defeased. According to the most recent YE reporting, the pool had a weighted-average (WA) cash flow growth of +3.0% for the non-defeased loans, resulting in a WA DSCR of 2.05x at YE2018, compared with 1.99x at YE2017 and the WA DBRS Morningstar DSCR derived at issuance of 1.23x. Of the nine loans (21.7% of the pool) on the servicer’s watchlist, seven loans (20.3% of the pool) were flagged for performance-related declines. Based on the most recent reporting, these loans reported a WA DSCR of 1.12x, compared with 1.66x at YE2018 and the WA DBRS Morningstar DSCR derived at issuance of 1.36x.

The Dayton Mall loan is secured by a regional mall in Dayton, Ohio, and is on the DBRS Morningstar Hotlist for increased risks due to the closure of two noncollateral anchors in Elder-Beerman and Sears, as well as a few larger in-line tenants, in the last 18 months, and an upcoming lease expiration for JCPenney (22.8% of collateral net rentable area) in March 2021. While the property has had some recent leasing momentum, with the sponsor committing over $8.0 million in capital expenditure to complete build-outs, DBRS Morningstar maintains the risks for this loan are significantly increased from issuance as ownership (Washington Prime Group) will face some significant challenges in backfilling two empty department store spaces prior to loan maturity in September 2022.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A and X-B are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#3 – Dayton Mall (7.6% of the pool)
-- Prospectus ID#5 – Rogue Valley Mall (4.9% of the pool)
-- Prospectus ID#6 – Animas Valley Mall (4.3% of the pool)
-- Prospectus ID#8 – Bricktown Square Shopping Center (3.0% of the pool)
-- Prospectus ID#12 – Towne Mall (2.0% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology, which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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 under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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