: Moody's Assigns Definitive Ratings to Seven CMBS Classes of Morgan Stanley Capital I Trust 2016-UBS9
Global Credit Research - 11 Mar 2016
Approximately $514.1 million of Structured Securities Affected
New York, March 11, 2016 -- Moody's Investors Service has assigned definitive ratings to seven classes of CMBS securities, issued by Morgan Stanley Capital I Trust 2016-UBS9, Commercial Mortgage Pass-Through Certificates, Series 2016-UBS9:
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-SB, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. X-A*, Definitive Rating Assigned Aaa (sf)
Cl. A-S, Definitive Rating Assigned Aa2 (sf)
* Interest-Only Class
RATINGS RATIONALE
The Certificates are collateralized by 31 fixed-rate loans secured by 222 properties. The ratings are based on the collateral and the structure of the transaction.
Moody's CMBS ratings methodology combines both commercial real estate and structured finance analysis. Based on commercial real estate analysis, Moody's determines the credit quality of each mortgage loan and calculates an expected loss on a loan specific basis. Under structured finance, the credit enhancement for each certificate typically depends on the expected frequency, severity, and timing of future losses. Moody's also considers a range of qualitative issues as well as the transaction's structural and legal aspects.
The credit risk of loans is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by each loan's DSCR, and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by each loan's LTV ratio.
The Moody's Actual DSCR of 1.87X (1.59X excluding structured credit assessed loans) is higher than the 2007 conduit/fusion transaction average of 1.31X. The Moody's Stressed DSCR of 1.06X (1.00X excluding structured credit assessed loans) is slightly higher than the 2007 conduit/fusion transaction average of 0.92X.
The Trust loan balance of $666.6 million represents a Moody's LTV ratio of 104.9%, which is lower than the 2007 conduit/fusion transaction average of 110.6%. Excluding one loan with assigned Structured Credit Assessments, the Trust loan balance of $610.6 million represents a Moody's LTV ratio of 109.7%. When including subordinate debt, the Moody's LTV ratio is 110.8%. Excluding one loan with assigned Structured Credit Assessments, the Moody's LTV ratio is 111.4%.
Moody's also grades properties on a scale of 1 to 5 (best to worst) and considers those grades when assessing the likelihood of debt payment. The factors considered include property age, quality of construction, location, market, and tenancy. The weighted average Moody's Quality Grade for the pool is 2.30, which is on par with most recently rated pools, and is an indication that the real estate quality of the underlying assets is average relative to the CMBS 2.0 universe. Typical Moody's rated conduit pools during 2015 year to date exhibit an average grade of 2.35.
Moody's also considers both loan level diversity and property level diversity when selecting a ratings approach. With respect to loan level diversity, the pool's loan level Herfindahl score is 17.4 (16.6 excluding structured credit assessed loans), which is below the scores calculated for most multi-borrower pools that Moody's has rated since 2009. Accounting for loans made to a common borrower represented in the pool, Moody's borrower level Herfindahl score is slightly lower at 20.0 (16.8 excluding structured credit assessed loans).
With respect to property level diversity, the pool's property level Herfindahl score is 24.2 (20.3 excluding structured credit assessed loans), which is significantly lower than the 1Q2015 average of 37.5. The pool contains five loans (23.8% of the pool balance) that are secured by multiple properties. Loans secured by multiple properties benefit from lower cash flow volatility given that excess cash flow from one property can be used to augment another's cash flow to meet debt service requirements. These loans also benefit from the pooling of equity from each underlying property.
The principal methodology used in these ratings was "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.
Moody's review used the excel-based CMBS Conduit Model, which it uses for both conduit and fusion transactions. Credit enhancement levels for conduit loans are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade (which reflects the capitalization rate Moody's uses to estimate Moody's value). Moody's fuses the conduit results with the results of its analysis of investment grade structured credit assessed loans and any conduit loan that represents 10% or greater of the current pool balance. Moody's analysis also uses the CMBS IO calculator, which references the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit assessments; original and current bond balances grossed up for losses for all bonds the IO(s) reference(s) within the transaction; and IO type corresponding to an IO type as defined in the published methodology.
Moody's Parameter Sensitivities: If Moody's value of the collateral used in determining the initial rating were decreased by 5.0%, 14.3%, and 22.8%, the model-indicated rating for the currently rated Aaa (sf) Super Senior classes would be Aaa, Aa1, and Aa3, respectively; for the Aa2 (sf) rated Class A-S the ratings would be Aa3, A1, and Baa1, respectively. Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time; rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.
These ratings: (a) are based solely on information in the public domain and/or information communicated to Moody's by the issuer at the date it was prepared and such information has not been independently verified by Moody's; (b) must be construed solely as a statement of opinion and not a statement of fact or an offer, invitation, inducement or recommendation to purchase, sell or hold any securities or otherwise act in relation to the issuer or any other entity or in connection with any other matter. Moody's does not guarantee or make any representation or warranty as to the correctness of any information, rating or communication relating to the issuer. Moody's shall not be liable in contract, tort, statutory duty or otherwise to the issuer or any other third party for any loss, injury or cost caused to the issuer or any other third party, in whole or in part, including by any negligence (but excluding fraud, dishonesty and/or willful misconduct or any other type of liability that by law cannot be excluded) on the part of, or any contingency beyond the control of Moody's, or any of its employees or agents, including any losses arising from or in connection with the procurement, compilation, analysis, interpretation, communication, dissemination, or delivery of any information or rating relating to the issuer.
Factors that would lead to an upgrade or downgrade of the rating:
The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had previously anticipated. Factors that may cause an upgrade of the ratings include significant loan paydowns or amortization, an increase in the pool's share of defeasance or overall improved pool performance. Factors that may cause a downgrade of the ratings include a decline in the overall performance of the pool, loan concentration, increased expected losses from specially serviced and troubled loans or interest shortfalls.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.
Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF428091.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Christopher Iacurto
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.