Morningstar DBRS Downgrades Credit Ratings on Five Classes of BB-UBS Trust 2012-TFT

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2012-TFT issued by BB-UBS Trust 2012-TFT as follows:

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

In addition, Morningstar DBRS confirmed the credit ratings on two classes as follows:

-- Class TE at B (high) (sf)
-- Class E at C (sf)

There are no trends on Classes C, D, and E, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings. The trends on Classes A, X-A, and B were changed to Negative from Stable, while the trend on Class TE remains Stable.

The credit rating downgrades for Classes C and D are reflective of Morningstar DBRS' loss projection for the Tucson Mall loan (Prospectus ID#1; 60.2% of the pool), which remains in special servicing as of the November 2024 remittance. Both classes were previously downgraded in December 2022 given exhibited performance declines and an updated appraisal, which showed a significant value decline from issuance for the Tucson Mall property. As part of this review, Morningstar DBRS derived an updated value of $108.3 million for Tucson Mall, representing a 10.5% decline from the July 2021 appraised value of $121.0 million and a 72.9% decline from the issuance appraised value of $400.0 million. Although the sponsor has shown recent commitment to the property, the continued lag in performance and the very high loan-to-value ratio (LTV) implied by the Morningstar DBRS value that approached 170%, and the upcoming end of the forbearance period, the consideration of a liquidation scenario to determine recoverability as part of the analysis for this review was supported. The liquidation scenario suggests that losses could erode into Class C, supporting the C (sf) credit ratings on the transaction's three most junior classes.

The transaction was originally backed by three separate 7.5-year, fixed-rate, interest-only (IO) first-mortgage loans. The two remaining loans are secured by Tucson Mall in Tucson, Arizona, and Town East Mall (Prospectus ID#3; 39.8% of the pool) in the Dallas suburb of Mesquite, Texas. Both loans were modified to extend their maturity dates to June 2024 but were ultimately not repaid and were transferred to special servicing. While the values for both malls have declined significantly since issuance, the transaction's senior bonds have benefited from principal paydown of over $25.0 million due to principal curtailments and continued loan amortization since Morningstar DBRS' last review. Although Morningstar DBRS' recoverability scenario for both loans suggests that Classes A and B remain insulated from loss, there remains significant uncertainty with regard to the ultimate recoverability given the low investor appetite for regional mall property types and the possibility that one or both of the collateral malls' performance could further deteriorate through the workout period. The credit rating downgrades and Negative trends for Classes A and B reflect these factors.

The Tucson Mall loan is secured by a 667,581-square-foot (sf) portion of a 1.3 million-sf super-regional mall in Tucson. The property is currently anchored by noncollateral tenants Dillard's, Macy's, JCPenney, and Dick's Sporting Goods, as well as a collateral tenant Curacao (12.2% of net rentable area (NRA), lease expires July 2034), which backfilled Forever 21's surrendered space in October 2024. Inclusive of Curacao, collateral occupancy was reported at 87.0% as of the July 2024 rent roll; however, despite the relatively stable occupancy levels, net cash flow (NCF) is expected to remain well below issuance as the YE2023 financials reported a NCF of $12.6 million (debt service coverage ratio (DSCR) of 1.16x) compared with the issuance NCF of $24.1 million. According to servicer commentary, a $7.9 million principal curtailment was applied, and the loan was modified in October 2024 to grant a maturity forbearance through to an initial expiration date of November 1, 2024. The forbearance may be extended for 30-day periods at the lender's discretion but will reportedly not be extended beyond March 2025.

The Town East Mall loan is secured by a 421,206-sf portion of a 1.2 million-sf regional mall in Mesquite, 10 miles east of Dallas. The property is anchored by Dillard's, JCPenney, and Macy's, none of which are collateral for the loan. The mall has been 80.0% occupied since 2022; however, when excluding the vacant Sears box, occupancy is over 95.0%. The loan reported a YE2023 NCF of $16.5 million compared with the issuance NCF of $16.8 million and, as of June 2024, reported a DSCR of 1.75x. In July 2024, a loan modification was executed that extended the loan's maturity date to December 2024, in exchange for a principal paydown of $11.0 million. The maturity date can be extended to June 2025 provided that the borrower has a written refinance commitment letter or a listing agreement with a broker engaged to sell the property prior to June 2025 and, as of November 2024, the loan was returned to the master servicer. Despite the stable NCF, the mall's value declined over 25% since issuance, most recently being reported at $187.0 million (LTV of 64.4%) as of June 2021.

In the analysis for this review, Morningstar DBRS derived updated values for both collateral malls, using the YE2023 NCFs for each, with a 10.0% haircut applied. For Tucson Mall, a capitalization (cap) rate of 10.5% was applied, resulting in an updated Morningstar DBRS value of $108.3 million (LTV of 168.3%), in line with the previous Morningstar DBRS value derived in 2022 and 10.5% below the July 2021 value of $121.0 million. For Town East Mall, a cap rate of 10.0% was applied, resulting in a value of $148.4 million (LTV of 81.4%), approximately 18.2% below the previous Morningstar DBRS value and 20.7% below the July 2021 appraised value of $187.0 million, but still suggestive of remaining equity that should incentivize the sponsor to achieve a successful takeout of the trust loan, supporting the Stable trend for the Class TE with this credit rating action. A positive qualitative adjustment of 0.25% for cash flow volatility was applied to the LTV sizing for the Town East Mall analysis to reflect the generally stable in-place cash flows since issuance.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS 
There were no Environmental,- Social, or Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Class X-A is an interest-only (IO) certificate that references 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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

The principal methodology is North American CMBS Surveillance Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428798.

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

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 info-DBRS@morningstar.com.

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.

Morningstar DBRS 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS Limited
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Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American Single-Asset/Single-Borrower Ratings Methodology (September 19, 2024), https://dbrs.morningstar.com/research/439699
-- Rating North American CMBS Interest-Only Certificates (June 28, 2024), https://dbrs.morningstar.com/research/435294
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (October 28, 2024), https://dbrs.morningstar.com/research/441840

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

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.