DBRS Morningstar Upgrades Ratings on Six Classes of UBS-Barclays Commercial Mortgage Trust 2012-C3

DBRS Limited (DBRS Morningstar) upgraded its ratings on the following six classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C3 issued by UBS-Barclays Commercial Mortgage Trust 2012-C3:

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

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)

All trends are Stable.

The rating upgrades are reflective of increased defeasance and increased credit support to the bonds as a result of principal repayment since DBRS Morningstar’s last review, and the Stable trends reflect the generally stable performance of the remaining collateral. At issuance, the transaction consisted of 76 fixed-rate loans secured by 113 commercial and multifamily properties, with a trust balance of $1.08 billion. Since the last review, four loans with a combined issuance balance of $49.2 million have repaid from the trust and nine loans (combined issuance balance of $217.8 million) have been fully defeased. As of the February 2022 remittance, 64 loans remain within the transaction with a current trust balance of $699.7 million, reflecting collateral reduction of 35.3% since issuance. In total, 30 loans, representing 59.8% of the pool balance have defeased, including the two largest loans, 1000 Harbor Boulevard (Prospectus ID#1;16.1% of the pool) and Plaza at Imperial Valley (Prospectus ID#4; 5.4% of the pool).

All of the outstanding loans are scheduled to mature by year-end (YE) 2022. Excluding defeased and specially serviced loans, the weighted-average debt service coverage ratio and debt yield for the remaining loans are 1.48 times and 12.45%, respectively. DBRS Morningstar projects that the vast majority of these loans are healthy candidates for refinance based on these credit metrics. There are currently three loans, representing 3.0% of the pool, in special servicing, two of which are delinquent and one of which is current.

The largest specially serviced loan, Cooper Retail Portfolio (Prospectus ID#19; 1.9% of the pool), is secured by three anchored retail centers in three distinct markets: Somerset Centre in Somerset, Kentucky; Saufley Plaza in Pensacola, Florida; and Magnolia Place in Columbus, Mississippi, totaling 216,260 square feet (sf) of net rentable area (NRA). The loan transferred to the special servicer in June 2020 and a forbearance agreement was subsequently executed in July 2021, allowing the borrower to defer a combination of principal, interest and reserve payments between March and December 2021, with repayment to occur between January and August 2022. As of the February 2022 remittance, the loan is current and remains with the special servicer. As a result of the loss of several major tenants over the past three years, portfolio occupancy has declined to 48.5% as of the September 2021 rent-roll, from 65.6% at YE2020 and 97% at issuance. However, Saufley Plaza and Magnolia Place have shown recent leasing activity with Sunshine Fitness signing a 15-year lease for 30,000 sf (beginning in February 2022) and Ross Dress For Less signing a 11-year lease for 22,000 sf (beginning in March 2022), respectively. As such, portfolio occupancy is expected to increase to a weighted average of 73.0% in the near term.

According to an appraisal conducted in July 2021, the combined value for all three properties on an as-is basis was $17.9 million, which is greater than the outstanding loan balance of $12.96 million. Leases representing approximately 10.8% of the portfolio NRA are scheduled to roll by YE2022. Should occupancy remain subdued and additional tenants vacate, the borrower’s ability to keep the loan current and/or refinance at maturity may be hindered. As a part of this review, DBRS Morningstar analyzed the loan with an elevated probability of default to reflect the current risk profile of the underlying collateral. There has been no realized loss to the trust since issuance, and the full balance of all three loans currently in special servicing is contained to the unrated class G.

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 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#19 – Cooper Retail Portfolio (1.9% 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 4, 2022), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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 [email protected].

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.

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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