Mortgage – Wells Fargo Commercial Mortgage Trust 2021-SAVE — Moody’s assigns provisional ratings to eight CMBS classes of Wells Fargo Commercial Mortgage Trust 2021-SAVE
Rating Action: Moody’s assigns provisional ratings to eight CMBS classes of Wells Fargo Commercial Mortgage Trust 2021-SAVE
Global Credit Research – 26 Jan 2021
$416.8 million of structured securities affected
New York, January 26, 2021 — Moody’s Investors Service, (“Moody’s”) has assigned provisional ratings to eight classes of CMBS securities, issued by Wells Fargo Commercial Mortgage Trust 2021-SAVE, Commercial Mortgage Pass-Through Certificates, Series 2021-SAVE:
Class A, Assigned (P)Aaa (sf)
Class B, Assigned (P)Aa3 (sf)
Class C, Assigned (P)A3 (sf)
Class D, Assigned (P)Baa3 (sf)
Class E, Assigned (P)Ba2 (sf)
Class HRR, Assigned (P)Ba3 (sf)
Class X-CP*; Assigned (P)Aa3 (sf)
Class X-NCP*, Assigned (P)Aa3 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The certificates are collateralized by a single, floating-rate loan secured by the borrower’s fee simple interest in a portfolio of 41 grocery stores, two industrial properties and two office properties (the “portfolio”), all leased and occupied under a unitary master lease by Save Mart Supermarkets. Our ratings are based on the credit quality of the loan and the strength of the securitization structure.
Moody’s approach to rating this transaction involved the application of both our Large loan and Single Asset/Single Borrower CMBS methodology and our IO Rating methodology. The rating approach for securities backed by a single loan compares the credit risk inherent in the underlying collateral with the credit protection offered by the structure. The structure’s credit enhancement is quantified by the maximum deterioration in property value that the securities are able to withstand under various stress scenarios without causing an increase in the expected loss for various rating levels. In assigning single borrower ratings, we also consider a range of qualitative issues as well as the transaction’s structural and legal aspects.
The portfolio is located across California and Nevada, in 13 Metropolitan Statistical Areas, primarily concentrated in California’s Central Valley and the Bay Area.
The grocery stores (77.1% of NRA, 88.8% of in-place base rent) are under three retail banners: 20 properties are under the Lucky/Lucky California banner, a line of full service grocers with primary presence in California’s Bay Area; 13 properties are under the Save Mart banner, a line of full-service grocers with primary presence in California’s Central Valley area; and 8 properties are under the FoodMaxx banner, a discount grocer.
The two industrial properties (20.0% of NRA, 8.8% of in-place base rent) are operated by Save Mart as their warehouse and distribution facilities. The two office properties (2.9% of NRA, 2.4% of in-place base rent) serve as Save Mart’s corporate headquarters.
The securitization consists of a single floating-rate, first lien mortgage loan with an outstanding cut-off date principal balance of $416,800,000 (the “loan” or “mortgage loan”). The mortgage loan has an initial two-year term, with five, one-year extension options. The mortgage loan is interest-only for the first five years of the loan term, followed by a fixed amortization schedule set forth in Schedule IV of the loan agreement.
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 MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
The Moody’s first-mortgage DSCR is 3.31x and Moody’s first-mortgage stressed DSCR (at a 9.25% constant) is 1.07x. Moody’s DSCR is based on our assessment of the property’s stabilized NCF.
The first mortgage balance of $416,800,000 represents a Moody’s LTV of 95.3%.
With respect to diversity, the portfolio’s property level Herfindahl score is 33.3.
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 portfolio’s weighted average property quality grade is 1.82.
Notable strengths of the transaction include: established regional tenancy, recession resistant non-discretionary demand of the real estate, major market concentration of the collateral, and property-level diversity.
Notable concerns of the transaction include: tenant concentrations, high occupancy cost ratios for certain stores, historical financial volatility at the tenant-level, and the mortgage loan’s debt service payment profile.
The principal methodology used in rating all classes except interest-only classes was "Moody's Approach to Rating Large loan and Single Asset/Single Borrower CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1190579. The methodologies used in rating interest-only classes were "Moody's Approach to Rating Large loan and Single Asset/Single Borrower CMBS" published in September 2020 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1190579 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1111179. 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 www.moodys.com for a copy of these methodologies.
Moody’s approach for single borrower and large loan multi-borrower transactions evaluates credit enhancement levels based on an aggregation of adjusted loan level proceeds derived from our Moody’s loan level LTV ratios. Major adjustments to determining proceeds include leverage, loan structure, and property type. These aggregated proceeds are then further adjusted for any pooling benefits associated with loan level diversity, other concentrations and correlations.
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 pay downs 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.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1261958
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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
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 www.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://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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 www.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 www.moodys.com.
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.
Jiali Xie Associate Lead 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 Gregory Ingaglio 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
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