DBRS Morningstar Changes Trends on Classes of CHT 2017-COSMO Mortgage Trust, Removes Class from Under Review with Negative Implications

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2017-COSMO issued by CHT 2017-COSMO Mortgage Trust as follows:

-- Class A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (sf)

With this review, DBRS Morningstar removed the Under Review with Negative Implications status on Class F where it was placed on March 27, 2020. DBRS Morningstar also changed the trends on Classes A, B, C, D, and E to Stable from Negative. Class F carries a Negative trend because of sustained underlying pressures and lasting residual effects of the Coronavirus Disease (COVID-19) global pandemic. The rating confirmations reflect DBRS Morningstar’s view that, despite a significant interruption of operations and cash flow in 2020 related to the pandemic, the property is likely well positioned to rebound and the assigned ratings adequately reflect the remaining risk resulting from the pandemic. The loan has paid as expected during the pandemic, with no delinquencies or defaults reported to date.

The $1.4 billion loan is secured by the Cosmopolitan luxury hotel and casino in Las Vegas. The property was completed in 2010 and is in an excellent mid-strip location between Bellagio and CityCenter. Whole-loan proceeds, along with $420.0 million of mezzanine financing, were used to refinanced prior debt. The loan was structured with an initial two-year term with five, one-year extension options. The borrower has exercised two of its extensions thus far, extending the maturity date to November 2021. The fully extended maturity is November 2024.

The coronavirus pandemic resulted in economic strain on the hotel for most of 2020 as the year-end net cash flow (NCF) was down 67.3% compared to pre-pandemic levels from 2019. Per the YE2020 operating statements, the subject reported occupancy, average daily rate (ADR), and revenue per available room of 61.4%, $358.00, and $219.84, respectively. In comparison, the subject reported YE2019 figures of 99.0%, $352.22, and $345.33, respectively. Despite its weak performance in 2020, the Las Vegas hotel market appears to be showing signs of resiliency and is poised for a strong recovery fueled by pent-up demand and limited international options. Per the trailing 12-month period ended June 30, 2021, operating statements, NCF increased by 95.9% compared to YE2020. The sharp improvement is the result of revenue increasing 24.1% between reporting periods, which was driven by higher ADR, food and beverage, and other department revenue.

According to a September 2021 article in Seeking Alpha, the loan’s sponsor, Blackstone, is marketing the hotel for sale with an asking price of $5 billion, which is well in excess of the trust debt.

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.

The DBRS Morningstar ratings assigned to Classes C, D, E, and F had more positive variances than the results implied by the loan-to-value sizing benchmarks from the October 2020 review.

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

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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 26, 2021), 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/384482.

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 [email protected].

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