Research: Rating Action: Moody’s assigns definitive ratings to eight CMBS classes of BBCMS Mortgage Trust 2022-C18
Approximately $636.4MM of Structured Securities Affected
New York, December 14, 2022 — Moody’s Investors Service (“Moody’s”) has assigned definitive ratings to eight classes of CMBS securities, issued by BBCMS Mortgage Trust 2022-C18, Commercial Mortgage Pass-Through Certificates, Series 2022-C18:
Cl. A-1, Definitive Rating Assigned Aaa (sf)
Cl. A-2, Definitive Rating Assigned Aaa (sf)
Cl. A-3, Definitive Rating Assigned Aaa (sf)
Cl. A-4, Definitive Rating Assigned Aaa (sf)
Cl. A-5, Definitive Rating Assigned Aaa (sf)
Cl. A-SB, Definitive Rating Assigned Aaa (sf)
Cl. A-S, Definitive Rating Assigned Aa1 (sf)
Cl. X-A*, Definitive Rating Assigned Aa1 (sf)
*Reflects interest-only classes
RATINGS RATIONALE
The Certificates are collateralized by 37 fixed rate loans secured by 114 properties. The ratings are based on the collateral and the structure of the transaction and the following Structured Credit Assessments:
We assigned an investment grade of a2 (sca.pd) to the Hilton Columbus at Easton Town Center Loan, which represents approximately 6.1% of the pool balance. The loan is secured by the borrower’s fee interest in a 345-room full-service hotel located in Columbus, OH.
We assigned an investment grade of baa1 (sca.pd) to the Liberty Park at Tysons Loan, which represents approximately 5.6% of the pool balance. The loan is secured by the borrower’s fee interest in a 225,038 SF mixed-use office/data center/warehouse building located in Vienna, VA.
We assigned an investment grade of baa3 (sca.pd) to the 70 Hudson Street Loan, which represents approximately 4.5% of the pool balance. The loan is secured by the borrower’s fee interest in 12-story, Class A office building located in Jersey City, NJ.
We assigned an investment grade of baa1 (sca.pd) to the Pompano Beach Fishing Village Loan, which represents approximately 1.2% of the pool balance. The loan is secured by the borrower’s leasehold interest in a walkable beachfront 97,392 SF mixed-use development featuring a total of eight parcels comprised of restaurants, retail and a brand new 150-room Hilton hotel, located in Pompano Beach, FL.
We assigned an investment grade of baa3 (sca.pd) to the Crossgates Commons Loan, which represents approximately 1.2% of the pool balance. The loan is secured by the borrower’s fee interest in 438,814 retail property located at 161 Washington Avenue Extension in Albany, NY.
We assigned an investment grade of aa3 (sca.pd) to the Park West Village Loan, which represents approximately 0.9% of the pool balance. The loan is secured by the borrower’s fee interest in a 850 unit multi-family property located at 784, 788, and 792 Columbus Avenue in New York, NY.
Moody’s approach to rating CMBS deals 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 loan-to-value ratio, referred to as the Moody’s LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan’s amortization profile.
The Moody’s Actual DSCR of 1.64x (1.40x excluding credit assessed loans) is worse than the 2021 conduit/fusion transaction average of 2.69x (2.09x excluding credit assessed loans). The Moody’s Stressed DSCR of 1.12x (1.04x excluding credit assessed loans) is better than the 2021 conduit/fusion transaction average of 1.07x (0.90x excluding credit assessed loans).
The pooled trust loan balance of $808,180,236 represents a Moody’s LTV ratio of 101.1% (107.0% excluding credit assessed loan),which is better than the 2021 conduit/fusion transaction average of 106.3% (115.8% excluding credit assessed loans) and better than most pools securitized during the third quarter of 2022. There are two loans in the pool structured with additional debt in the form of subordinate debt. With the additional debt, the Moody’s total debt LTV ratio rises to 104.1%.
The Moody’s adjusted LTV is 90.5% (95.5% excluding credit assessed loans), compared to 90.3% (95.4% excluding credit assessed loans), based on our adjusted Moody’s value taking in to account the current interest rate environment.
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 22.5. The transaction loan level diversity profile is lower than Moody’s-rated transactions during the prior four quarters ending Q3 2022, which averaged 24.0. With respect to property level diversity, the pool’s property level Herfindahl score is 33.5.
The following notable strengths of the transaction include: (i) six loans assigned an investment-grade SCA; (ii) property composition; (iii) acquisition financing; and (iv) several loans securitized by multiple properties.
The following notable concerns of the transaction include: (i) amortization profile; (ii) Moody’s LTV; (iii) low-diversification; (iii) Moody’s property grade; (iv) single-tenancy share; (v) small market share; and (vi) certain asset-level legal considerations.
Moody’s also grades properties on a scale of 0 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 pool’s weighted average property quality grade is 2.33, which is worse than the average score of 2.10 calculated across Moody’s-rated multi-borrower transactions during the prior four quarters ending Q2 2022.
The principal methodology used in rating all classes except interest-only classes was “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056. The methodologies used in rating interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
Moody’s analysis of credit enhancement levels for conduit deals is 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 considers the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit estimates; 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.
Factors that would lead to an upgrade or downgrade of the ratings:
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 in the disclosure form. Moody’s Rating Symbols and Definitions can be found on: https://ratings.moodys.com/rating-definitions.
Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1352529.
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 https://ratings.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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/api/rmc-documents/74785.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Praveen Kumar Reddy Pallapothula
Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Shand Evans
Vice President – Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
