DBRS Morningstar Downgrades 11 Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28, Removes 13 Classes from UR-Neg.
CMBSDBRS, Inc. (DBRS Morningstar) downgraded the ratings on the following 11 classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C28 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C28:
-- Class E-1 to BB (high) (sf) from BBB (sf)
-- Class E to B (high) (sf) from BBB (low) (sf)
-- Class E-2 to B (high) (sf) (sf) from BBB (low) (sf)
-- Class EF to B (sf) from BB (sf)
-- Class F to B (sf) from BB (sf)
-- Class F-1 to B (high) (sf) from BB (sf)
-- Class F-2 to B (sf) from BB (sf)
-- Class G-1 to B (low) (sf) from B (high) (sf)
-- Class EFG to CCC (sf) from B (low) (sf)
-- Class G to CCC (sf) from B (low) (sf)
-- Class G-2 to CCC (sf) from B (low) (sf)
DBRS Morningstar also confirmed the ratings on the remaining classes as follows:
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
With this review, DBRS Morningstar removed Classes D, X-D, E-1, E-2, E, F-1, F-2, EF, F, G-1, G-2, G, and EFG from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on Classes E-1, E-2, E, F-1, F-2, F, EF, and G-1 are Negative, given the weakening credit metrics of the remaining loans in the transaction and the deteriorating credit enhancement levels from the anticipated liquidation of the DoubleTree by Hilton – Cleveland, OH loan (Prospectus ID#13; 3.2% of trust balance). The trends on Classes D and X-D are Stable. The trends on Classes A-3, A-4, A-SB, A-S, B, C, X-A, and X-B remain Stable. Classes EFG, G, and G-2 do not carry trends given the CCC (sf) rating.
The rating downgrades reflect the overall weakening performance of the transaction since the last review, which has been exacerbated by the Coronavirus Disease (COVID-19) pandemic. At issuance, the trust consisted of 42 fixed-rate loans secured by 161 commercial and multifamily properties with a trust balance of $955.6 million. Per the January 2021 remittance report, there were 40 loans secured by 46 commercial and multifamily properties remaining in the trust with a total trust balance of $853.1 million, representing a 10.7% collateral reduction since issuance. Most of the collateral reduction was attributed to the early prepayment of the GLP Industrial Portfolio A loan ($70.0 million loan balance) in October 2019. The trust is concentrated by loan size with the largest 15 loans representing 73.9% of the trust balance and by property type with 17 loans secured by retail properties, totaling 39.2% of the trust balance. The largest loan, Penn Square Mall (Prospectus ID#1; 10.6% of the trust balance), has investment-grade credit characteristics and one loan, representing 0.9% of the trust balance, is fully defeased.
Four loans, representing 11.9% of the trust balance, are in special servicing; three of these loans are secured by hospitality properties that transferred to the special servicer as a result of the coronavirus pandemic. The DoubleTree by Hilton – Cleveland, OH loan was the only loan transferred to the special servicer prior to the pandemic and the borrower has agreed to a voluntary foreclosure, which was scheduled to occur in May 2020. However, due to the coronavirus pandemic, Cuyahoga County placed a moratorium on sherriff sales. The moratorium expired in October 2020, but the special servicer must resolve legal issues prior to completing the foreclosure process. Foreclosure is now anticipated to occur in the near term and the trust is expected to acquire title to the collateral. The loan was liquidated from the trust based on the October 2020 appraised value of $13.2 million, resulting in an implied loss severity in excess of 75.0% to the trust. The projected loss would eliminate Class H-2 and result in a partial loss to Class H-1. DBRS Morningstar made probability of default adjustments for Le Meridian Cambridge MIT (Prospectus ID#12; 3.4% of the trust balance) (maturing in 2021) and Holiday Inn – La Mesa, CA (Prospectus ID#23; 1.3% of the trust balance).
An additional 15 loans, representing 32.2% of the trust balance, are on the servicer’s watchlist. Approximately 22.5% of the watchlisted loan balance are on the watchlist for deferred maintenance items. Park Lee Shopping Center (Prospectus ID#29; 0.9% of the trust balance) had a January 2021 loan maturity date; however, the loan was not repaid. Monthly loan payments remained current and the collateral exhibits credit characteristics that should be able to fully refinance the debt in full. DBRS Morningstar made probability of default adjustments for loans that exhibited increased default risk since issuance.
At issuance, DBRS Morningstar assigned an investment-grade shadow rating to Penn Square Mall. With this review, DBRS Morningstar confirmed that the performance of these loans remain consistent with investment-grade loan characteristics.
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.
DBRS Morningstar materially deviated from its CMBS North American CMBS Insight Model when determining the rating assigned to Class B, as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan level event risk.
Classes X-A, X-B, and X-D 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#1 – Penn Square Mall (10.6% of the pool)
-- Prospectus ID#4 – Navy League Building (7.0% of the pool)
-- Prospectus ID#7 – Greenville Mall (4.9% of the pool)
-- Prospectus ID#9 – Marriott – Albuquerque, NM (4.0% of the pool)
-- Prospectus ID#12 – Le Meridien Cambridge MIT (3.4% of the pool)
-- Prospectus ID#13 – DoubleTree by Hilton – Cleveland, OH (3.2% of the pool)
For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.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 the North American CMBS Surveillance Methodology (March 6, 2020), 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.
For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.
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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