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

DBRS Limited (DBRS Morningstar) confirmed the credit ratings on all classes of Commercial Mortgage Pass-Through 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)

The trend on Class D is Stable. Classes E, F, and G are assigned credit ratings that do not generally carry a trend in Commercial Mortgage Backed Securities (CMBS) credit ratings. The credit ratings are reflective of DBRS Morningstar’s loss expectations for the transaction’s only remaining loan, Shoppes at Buckland Hills (Prospectus ID#1; 100% of the pool), which has remained unchanged since the last rating action in December 2022. DBRS Morningstar’s analysis continues to indicate that disposition of the asset will likely result in a significant loss to the remaining trust.

The loan is secured by 562,600 square feet (sf) within a 1.3 million-sf regional mall in Manchester, Connecticut. The loan 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. Following failed negotiations, the borrower and special servicer entered into a consensual receivership in August 2021. As of the most recent update from the servicer, the receiver is attempting to stabilize property operations while evaluating various disposition strategies. As of the November 2023 remittance, the loan remains delinquent.

The mall’s anchors, none of which act as collateral for the subject loan, are Macy’s, Macy’s Men’s & Home, and JCPenney. A fourth anchor pad has remained vacant since the former tenant, Sears, closed in 2021. Collateral occupancy rate has increased to 87.1% as per the August 2023 rent roll, up from the September 2022 rate of 79.2%, but down from the YE2020 rate of 96.2%. The decline in occupancy was caused by the departure of the former largest collateral tenant, Dick’s Sporting Goods (formerly occupied 14.2% of the net rentable area (NRA)), at its lease expiration in January 2022. Since then, half of the Dick’s former space has been backfilled by Bob’s Stores (7.1% of the NRA), which took occupancy in November 2022 but remains in a free-rent period as of the August 2023 rent roll. The other largest collateral tenants at the property include Fairfield Inn & Suites (8.9% of the NRA on a ground lease expiring in December 2025), Dave & Busters (4.6% of the NRA, lease expiry in September 2029), and Barnes and Noble Booksellers (4.4% of the NRA, lease expiry in January 2024). There is moderate rollover risk in 2024 as 43 tenants, totaling approximately 21.7% of the NRA, have scheduled lease expirations, including the fourth-largest tenant, Barnes and Noble. However, the servicer has noted that renewal negotiations of the Barnes and Noble lease are ongoing. A tenant sales report indicated in-line sales of $402.78 per square foot (psf) for the trailing 12 months (T-12) ended July 31, 2023, compared with $415.92 psf for the T-12 ended August 31, 2022.. The loan has been reporting a debt service coverage ratio (DSCR) below breakeven since the onset of the pandemic, with the DSCR reported at 0.50 times (x) for the T 6 ended June 30, 2023, down from 0.72x as of June 2022 and 0.86x at YE2020.

The most recent appraisal dated December 2022 valued the property at $72.2 million. Although that figure represents a 20.5% increase from the November 2021 appraised value of $59.6 million, it also represents a variance of -61.8% from the issuance appraised value of $189.0 million. The December 2022 appraised value accounts for the vacant Dick’s Sporting Goods space as well as the noted concentration of month-to-month tenants, which represent 18.7% of the NRA according to the appraiser.

Given that the loan is delinquent and in receivership, with the timing of disposition as yet unknown, and given the continued underperformance of the asset and upcoming lease rollovers, DBRS Morningstar tested different liquidation scenarios to determine the recoverability of the remaining bonds. DBRS Morningstar determined that the asset could withstand a reduction of up to 62% to the most recent appraised value before losses would fully erode Classes E, F, and G, which are currently rated C (sf), and the unrated Class H. The ratings are constrained because of unpaid interest, which remains outstanding in all classes below the Class D certificate, and the uncertain timing of disposition. Additionally, DBRS Morningstar notes the increasing propensity of interest shortfalls to Class D because of the delinquency of the sole remaining loan. Should the Class D bond be shorted interest, DBRS Morningstar may consider a downgrade of the rating, which was today confirmed at BBB (high) (sf). As of the November 2023 remittance, the Class D bond maintains approximately $92 million, or 89.6%, of credit support.

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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is winding down, with only one loan remaining in the pool. In those cases, the DBRS Morningstar credit ratings are typically based on a recoverability analysis for the remaining loan.

DBRS Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.1.0.0 (https://www.dbrsmorningstar.com/research/422859/north-american-cmbs-multi-borrower-rating-methodology)

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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