Rating Action: Moody's assigns provisional ratings to five CMBS classes of Manhattan West 2020-1MW Mortgage Trust
Global Credit Research - 13 Aug 2020
Approximately $1.32 billion of structured securities affected
New York, August 13, 2020 -- Moody's Investors Service has assigned provisional ratings to five classes of CMBS securities, issued by Manhattan West 2020-1MW Mortgage Trust, Commercial Mortgage Pass-Through Certificates, 2020-1MW:
Cl. A, Assigned (P)Aaa (sf) Cl. X*, Assigned (P)Aaa (sf) Cl. B, Assigned (P)Aa3 (sf) Cl. C, Assigned (P)A3 (sf) Cl. D, Assigned (P)Baa3 (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The certificates are collateralized by a single, fixed-rate loan secured by the borrower's fee and leasehold interests in the office condominium unit of One Manhattan West (the property), a 2.1 million SF, 70-story, Class A office building located in New York, NY. Our ratings are based on the credit quality of the loans 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 property is well located within the Hudson Yards district of Manhattan's West Side. The building is easily accessed by mass transit and benefits from the continuing Empire Station Complex redevelopment of the transit links surrounding Penn Station. There will be an entrance to the Moynihan Train Hall component of Penn Station directly across 9th Avenue which will offer Amtrak and Long Island Rail Road service. The Penn Station complex also includes NJ Transit and the A,C,E subway lines one block east at 8th Avenue and 1,2,3 subway lines two blocks east at 7th Avenue. Further access is provided by the 7 subway line at 34th Street-Hudson Yards station two blocks west, which connects to the key transportation hubs of both Times Square and Grand Central Terminal.
The property was completed in late 2019 and achieved LEED Gold certification. As of August 1, 2020, the property was 93.8% leased by 10 tenants. The tenant roster is strong as occupying companies include a diverse mix of big four accounting, international law firms, top tier consulting and other premier tenants. Furthermore, the property's executed leases have long terms with a weighted average remaining lease term of 17.5 years. Leases representing only 1.2% of the net rentable area (1.8% of the base rent) expire prior to the loan's maturity date. The four largest tenants at the property are Skadden, Arps, Slate, Meagher & Flom LLP (638,784 SF, 30.7% of NRA, 28.0% of base rent), EY (636,416 SF, 30.6% of NRA, 30.3% of base rent), Accenture plc (Aa3, senior unsecured; 280,192 SF, 13.5% of NRA, 18.8% of base rent) and the National Hockey League (176,007 SF, 8.5% of NRA, 8.4% of base rent).
The securitization consists of a $1,430,000,000 portion of a seven-year, interest-only, first lien mortgage loan with an outstanding principal balance of $1,500,000,000.
The credit risk of commercial real estate loans is determined primarily by two factors: 1) the probability of default, which is largely driven by the DSCR, and 2) the severity of loss in the event of default, which is largely driven by the LTV of the underlying loan.
The Moody's whole loan actual DSCR is 3.16x and the Moody's whole loan stressed DSCR (at a 9.25% constant) is 0.83x. Moody's DSCR is based on our assessment of the property's stabilized NCF.
The whole loan balance of $1,500,000,000 represents a Moody's LTV of 97.9%, taking in to consideration the additional $300,000,000 of total mezzanine loans the total debt Moody's LTV would increase to 117.5%.
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 0.00.
Notable strengths of the transaction include: the property's strong location, limited rollover, exceptional tenant roster, asset quality and experienced sponsorship.
Notable credit challenges of the transaction include: the effects of the coronavirus pandemic, new supply, the lack of asset diversification, limited operating history and certain credit negative loan structure and legal features.
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 May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875. The methodologies used in rating interest-only classes were "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.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 rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of commercial real estate from the collapse in U.S. economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. 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_1241271.
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_1133569.
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.
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.
Blair Coulson VP - Senior Credit Officer 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 Eun Choi Senior Vice President 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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