DBRS Morningstar Downgrades Rating on One Class of UBS-Barclays Commercial Mortgage Trust 2012-C4

DBRS Limited (DBRS Morningstar) downgraded the rating on the following class of Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by UBS-Barclays Commercial Mortgage Trust 2012-C4 as follows:

-- Class F to C (sf) from CCC (sf)

DBRS Morningstar also confirmed the rating on the following class:

-- Class E at B (low) (sf)

In addition, Class D was discontinued as this class was repaid with the January 2023 remittance. DBRS Morningstar also revised the trend on Class E to Stable from Negative. Class F has a rating that generally does not carry a trend in Commercial Mortgage Backed Securities (CMBS) ratings.

Since DBRS Morningstar’s last rating actions for this deal in November 2022, Classes B, C, and D have repaid in full following the repayment of 26 loans, positioning Class E as the most senior bond in the remaining capital stack. As of the January 2023 remittance, three loans remain in the pool, all of which are in special servicing and past their respective maturity dates. The ratings are reflective of DBRS Morningstar’s recovery and loss expectations for the remaining loans, the primary driver of which is the Newgate Mall loan (Prospectus ID#6, 60.3% of the pool), which DBRS Morningstar expects will incur significant losses at disposition.

The Newgate Mall loan is secured by the in-line space and two anchor spaces of a single-level regional mall in Ogden, Utah. The loan transferred to the special servicer in March 2020, two months prior to its May 2020 maturity date. Since issuance, the mall has lost multiple anchors, which has negatively affected financial performance in recent years. A foreclosure sale occurred in March 2021, and the title was obtained by the trust. According to the special servicer, the receiver continues to work to stabilize the asset, but it does not appear to currently be listed for sale. The most recent appraisal, dated October 2022, valued the property at $20.7 million, slightly below the January 2022 appraisal of $21.2 million, and well below the issuance appraised value of $83.0 million. Given the property’s dated appearance, secondary/tertiary location, declining revenues, challenges in backfilling the vacant anchor boxes and the general lack of liquidity for this property type, DBRS Morningstar assumed a stress to the most recent appraisal, indicating a possible loss severity in excess of 80.0%, which would erode nearly all of the $49.0 million currently remaining in the unrated, first-loss Class G certificate.

The second largest loan, Evergreen Plaza (Prospectus ID#12, 24.5% of the pool), is secured by an anchored retail center in Staten Island, New York. The loan was transferred to special servicing in August 2022 after its grocery store anchor tenant, previously 62.0% of the property’s net rentable area (NRA), vacated in July 2022. The sponsor made an initial relief request in order to allow time to find a backfill; however, no replacement tenant has been signed to-date. The sponsor was unable to secure refinancing ahead of the loan’s December 2022 maturity, and the collateral is estimated to be only 35.0% occupied as of January 2023. Loan performance has struggled in recent years despite the property previously being anchored by a grocery store, typically a more stable retail performer during the pandemic. The loan reported a debt service coverage ratio (DSCR) of 1.04 times (x) in 2020 and 0.73x in 2021. For the year-to-date (YTD) June 30, 2022, reporting, the loan reported a DSCR of 0.99x. According to the special servicer, a workout strategy has not yet been determined. Given the vacant anchor box and lack of leasing prospects, DBRS Morningstar believes the value of the property is significantly impaired, with an expected loss severity in excess of 25.0%.

The last loan in the pool, Fashion Square (Prospectus ID#23, 15.2% of the pool), is secured by a mixed-use property in St. Louis, Missouri, comprising 13,000 square feet (sf) of retail space, 75,000 sf of office space, and 72 multifamily units. The loan transferred to special servicing in July 2022 for imminent default and is now past its December 2022 maturity date after the sponsor was unable to secure refinancing due to the upcoming lease expiry for office tenant U.S. Bank. U.S. Bank, which comprises 43.0% of the total NRA and represents 62.0% of the total base rent at the property, is on a lease set to expire in April 2023. The lease is reportedly structured with two, one-year extension options but has not yet committed to staying at the property. The YTD June 30, 2022, financials reported a DSCR of 1.20x; however, if U.S. Bank vacates, cash flow is expected to drop well below breakeven levels. Special servicer commentary notes that the borrower has communicated their intentions to transition title to the lender, and the workout strategy is foreclosure. Given the borrower’s lack of commitment to the subject and the possibility of significantly increased vacancy, DBRS Morningstar expects a loss severity in excess of 50.0%.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance 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 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 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.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only one (or a few) remaining loan(s). In those cases, the DBRS Morningstar ratings are typically based on a recoverability analysis for the remaining loan(s).

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

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