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

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates (the Certificates) Series 2012-C4, issued by MSC Mortgage Securities Trust, 2012-C4 as follows:

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

DBRS Morningstar also changed the trend on Class D to Stable from Negative. Classes E, F, and G have ratings that do not carry a trend in Commercial Mortgage Backed Securities (CMBS) ratings.

Since DBRS Morningstar’s rating actions for this deal in March 2022, Classes B and C have repaid in full and the balance of Class D has been significantly reduced as a result of the repayment of four loans. The trend change to Stable from Negative on Class D reflects the better-than-expected recovery for the Independence Hill Independent Living loan, which DBRS Morningstar was closely monitoring ahead of its March 2022 maturity date because of its declining performance metrics combined with increased competition in the market.

The C (sf) ratings on Classes E, F, and G are reflective of DBRS Morningstar’s loss expectations for the transaction’s only remaining loan, Shoppes at Buckland Hills. The loan is secured by a regional mall in Manchester, Connecticut, and was transferred to special servicing in November 2020 because of monetary default after the borrower (an affiliate of Brookfield Property Partners (Brookfield)) submitted a hardship letter indicating that debt service and operating shortfalls would not be funded. As of the most recent update from the servicer, a receiver appointed by the court with consent from the borrower is working to stabilize tenancy. Various disposition strategies are being evaluated.

Occupancy declined to 77.6% as of June 2022 compared with 91.0% at YE2021 and 96.2% at YE2020. The decrease in the occupancy rate is primarily attributable to the departure of the former largest collateral tenant, Dick’s Sporting Goods, which closed at lease expiration in January 2022. The non-collateral anchors at the property include Macy’s, Macy’s Men’s & Home, JCPenney, and a vacant former Sears, which closed in January 2021. The servicer reported net cash flow (NCF) declined to $7.4 million at YE2020 from $12.2 million at YE2019. The annualized June 2022 NCF shows a further decline in cash flow to $6.2 million. Prior to 2020, the property’s performance was generally in line with the issuer’s expectations. The mall is located just north of I-84 in Manchester, a suburb of Hartford, Connecticut. Surrounding the property is a significant concentration of retail development, with a Walmart Supercenter directly east and The Home Depot, Lowe’s Home Improvement, Costco, and an upscale open air shopping center known as The Promenade Shops at Evergreen Walk to the north and west.

In March 2022, DBRS Morningstar assumed a liquidation scenario for the subject loan based on a 75% haircut to the issuance value, with the haircut based on value declines for similarly positioned mall properties in CMBS transactions that defaulted since 2020. Since that time, a November 2021 appraisal was finalized by the servicer concluding an as-is value of $59.95 million (implied loan-to-value of 176.2%), which is approximately 25% above the value derived by DBRS Morningstar in March 2022. However, given the cash flow declines that have continued in 2022 and the increased risk of a second closed anchor for the mall that could reduce investor demand, DBRS Morningstar considered a liquidation scenario based on a haircut to the 2021 appraised value, with an analyzed loss severity approaching 70%.

ESG CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

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

The principal methodology is the North American CMBS Surveillance Methodology (October 3, 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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429