DBRS Morningstar Downgrades Four Classes of MSC Mortgage Securities Trust, 2012-C4

DBRS Limited (DBRS Morningstar) downgraded four classes of the Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by MSC Mortgage Securities Trust, 2012-C4 as follows:

-- Class D to BBB (high) (sf) from A (low) (sf)
-- Class E to C (sf) from BBB (low) (sf)
-- Class F to C (sf) from BB (sf)
-- Class G to C (sf) from B (sf)

DBRS Morningstar confirmed the remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class C at A (high) (sf)

In addition, DBRS Morningstar discontinued its rating on Class X-B as the applicable reference obligation now has a C (sf) rating.

DBRS Morningstar changed the trend on Class D to Negative from Stable. Classes E, F, and G have ratings that do not carry trends. All other trends are Stable. DBRS Morningstar also designated Class G as having Interest in Arrears.

The downgrades and Negative trends generally reflect the increased likelihood of losses to the trust for the two specially serviced loans in the pool as of March 2021. These loans collectively represent 18.6% of the pool and include the largest loan in the pool, Shoppes at Buckland Hills (Prospectus ID#1, 15.7% of the pool), and was analyzed with a loss severity of 50.0% with this review. DBRS Morningstar is also monitoring the pool’s high concentration of loans backed by retail properties, which represent 45.1% of the pool, as this property type has been most acutely affected by the Coronavirus Disease (COVID-19) pandemic.

As of the March 2021 remittance, 30 of the original 38 loans remain in the pool, with an aggregate principal balance of $704.5 million, representing a collateral reduction of 35.8% since issuance. In addition to the significant paydown, the pool also benefits from defeasance as 10 loans, representing 31.8% of the current pool balance, are fully defeased. There are three loans, representing 4.8% of the current trust balance, on the servicer’s watchlist. The servicer is monitoring these loans for a variety of reasons, including low debt service coverage ratios (DSCRs) and occupancy issues.

The Shoppes at Buckland Hills loan is secured by a regional mall located in Manchester, Connecticut, within the Hartford metropolitan statistical area. The loan was transferred to special servicing in October 2020 and, as of the March 2021 remittance, reported 30 days to 59 days delinquent. According to the servicer, the loan sponsor, an affiliate of Brookfield Property Partners (Brookfield), had advised that operating and debt service shortfalls will no longer be supported, and the servicer is currently working to reach an agreement regarding a plan to move forward with the loan workout.

As of September 2020, the property reported an occupancy rate of 97.1% and the loan reported a DSCR of 0.86 times (x), compared with the YE2019 occupancy of 97.0% and DSCR of 1.42x. The non-collateral anchors at the property include Macy’s, Macy’s Men’s & Home, and JCPenney. The former non-collateral anchor, Sears, was closed in January 2021. Macy’s recently announced plans to close two stores in Connecticut, but the subject location was not included in that set. JCPenney, which was recently acquired out of bankruptcy by a joint venture that includes the loan sponsor, Brookfield, has not provided any indication of plans to close the subject location. The collateral also includes a pad site near the property that houses a Walmart store operating on a ground lease.

The largest collateral mall tenants include Dick’s Sporting Goods, Dave & Buster’s, and Barnes & Noble. Although the occupancy rate and cash flows have consistently held near the issuance figures for the life of the loan prior to the coronavirus pandemic, the performance has declined significantly with the 2020 figures, and the sponsor does not appear to be committed to the loan. Although the Sears anchor was neither a collateral tenant nor likely a significant draw for the mall, the loss of the store is an increased risk for the loan, as is the continued uncertainty for some of the collateral tenants including Dave & Buster’s, which remains closed amid the pandemic. The subject is the inferior of two regional malls in the Hartford area, with the other property, the Taubman-owned Westfarms, also suffering from the loss of a recently closed Lord & Taylor anchor that would likely mean increased competition for backfilling the Sears space at the subject mall.

Sales figures have not been provided to DBRS Morningstar since December 2017, when the comparable sales per square foot (sf) for tenants with less than 10,000 sf was $348 per sf (psf), down from $378 psf at issuance. If trends have continued in that direction over the last few years, the sales could be well below the issuance figures and, if that is the case, would explain some of Brookfield’s notice to the servicer regarding the unwillingness to fund shortfalls out of pocket. Given the sales trends, the loss of the Sears anchor and the general unknowns amid the coronavirus pandemic, particularly for the less well-positioned mall properties located in secondary markets, DBRS Morningstar believes the property’s as-is value has fallen well below the issuance figure. Given the outstanding delinquency and Brookfield’s notice to the servicer that suggests the trust could soon own this property, DBRS Morningstar liquidated the loan in the analysis for this review, based on a stressed value that resulted in a loss severity of 50.0%.

The second-largest loan in special servicing, Hilton Springfield (Prospectus ID#15, 2.9% of the current trust balance), transferred to special servicing in April 2020 for imminent monetary default. The loan is secured by a 245-key full-service hotel located in Springfield, Virginia. As of the March 2021 remittance, the loan was 90 days to 120 days delinquent, with the servicer noting that the borrower gave consent to a receivership and the petition has been filed. According to the servicer, a note sale is being considered, but nothing has been finalized with regard to the workout strategy to date.

Although the loan was current for the life of the loan until the transfer to special servicing, the hotel performance has consistently held at a level well below the issuance figures since 2013. As of YE2020, the property reported a DSCR of -0.24x, compared with the September 2019 DSCR of 0.68x and the YE2018 DSCR of 0.77x. An updated appraisal has not been provided to date, but given the sustained performance declines and the additional stress for the property amid the coronavirus pandemic, it is likely the as-is value is well below the issuance figure. DBRS Morningstar liquidated the loan in the analysis for this review, based on a significant haircut to the issuance value that resulted in a loss severity in excess of 60.0%.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-A is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

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

The principal methodology is 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 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.

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