DBRS Morningstar Confirms Ratings on All Classes of MSC Mortgage Securities Trust, 2012-C4

DBRS Limited (DBRS Morningstar) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by MSC Mortgage Securities Trust, 2012-C4 as follows:

-- Class B at AAA (sf)
-- Class C at A (high) (sf)
-- Class D at BBB (high) (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)

Class D continues to carry a Negative trend and Classes E, F, and G have ratings that do not carry a trend. All other trends are Stable. DBRS Morningstar also discontinued its ratings on Classes A-S and X-A as those classes have repaid with the most recent remittance. In addition, the Interest in Arrears designation on Classes E, F, and G has been removed with this review.

The rating actions reflect the continued concerns of the collateral remaining in the pool, specifically the resolution of the transaction’s largest loan, Shoppes at Buckland Hills (Prospectus ID#1, 59.8% of the current pool balance), and Independence Hill Independent Living (Prospectus ID#17, 10.3% of the current pool balance). As of the February 2022 remittance, only five of the original 38 loans remain in the pool, representing a collateral reduction of 83.6% since issuance with a current trust balance of $180.2 million. Shoppes at Buckland Hills is the pool’s only specially serviced loan, while the remaining four loans are on the servicer’s watchlist for upcoming loan maturities.

Shoppes at Buckland Hills is secured a regional mall in Manchester, Connecticut, and was added to the DBRS Morningstar Hotlist in January 2019 as a result of declining cash flows, falling tenant sales, a generally weak anchor mix, and a challenged local economy. The loan transferred to special servicing in November 2020 after falling delinquent and the borrower (an affiliate of Brookfield Property Partners) submitted a hardship letter indicating that debt service and operating shortfalls would not be funded. At that time, the borrower requested the release of cash management funds for expenses necessary to maintain operations; however, the borrower and servicer were unable to reach an agreement and a consensual receivership order has been entered. A receiver is currently in place and attempting to stabilize the asset for an eventual sale (although the timeline of a potential sale has yet to be determined). As of the December 2021 rent roll, the collateral was 91.0% occupied, however, the former largest collateral tenant, Dick’s Sporting Goods (14.3% of the net rentable area (NRA)), vacated its space at the conclusion of its lease in January 2022 bringing occupancy down to approximately 77.0%. The noncollateral anchors at the property include Macy’s, Macy’s Men’s & Home, JCPenney, and a vacant former Sears, which closed in January 2021. The property’s net cash flow (NCF) at year-end (YE) 2019 was reported at $12.2 million, remaining in line with issuance expectations of $12.3 million; however, that figure dropped precipitously at YE2020 to $7.4 million. Although no 2021 financials were made available, DBRS Morningstar expects this figure to be affected further with the departure of Dick’s Sporting Goods. Given the sales trends, the loss of the noncollateral Sears and collateral Dick’s Sporting Goods, and poor financial performance, DBRS Morningstar believes the property’s as-is value has fallen well below the issuance figure. DBRS Morningstar liquidated the loan in the analysis for this review based on a stressed value that resulted in a loss severity in excess of 65.0%.

Of the four other loans remaining in the pool, DBRS Morningstar is most concerned with Independence Hill Independent Living in the face of its March 2022 maturity date. The loan is secured by secured by a 294-unit senior living property in San Antonio, Texas. The loan was added to the servicer’s watchlist in December 2019 because of a low debt-service coverage ratio (DSCR) attributed to a decline in occupancy and revenues. Pursuant to terms within the loan agreement, this event triggered the activation of the cash management account, which remains in place as of this review. The account currently holds a balance of $340,338. In addition, the borrower was also granted Paycheck Protection Program loan forgiveness and Coronavirus Aid, Relief, and Economic Security Act funds as Coronavirus Disease (COVID-19) pandemic assistance. Although there has been a slight uptick in demand, the softening submarket, coupled with increased competition in the area, indicates that the outlook is murky. Operating expenses in recent years have also increased, driven specifically by advertising as the borrower actively attempts to seek occupants for the vacant units. Given the struggling DSCR preceding the pandemic and continued declining occupancy, DBRS Morningstar will be closely monitoring the loan’s upcoming maturity.

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.

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 – Shoppes at Buckland Hills (59.8% of the pool)

The DBRS Morningstar 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 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.

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. 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 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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