DBRS Morningstar Upgrades One Class of UBS-Barclays Commercial Mortgage Trust 2012-C4, Changes Trends on Two Classes to Stable from Negative

DBRS, Inc. (DBRS Morningstar) upgraded the rating on the following class of Commercial Mortgage Pass-Through Certificates, Series 2012-C4 issued by UBS-Barclays Commercial Mortgage Trust 2012-C4 as follows:

-- Class B to AA (sf) from AA (low) (sf)

DBRS Morningstar also confirmed the ratings on the remaining classes as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at A (high) (sf)
-- Class C at A (sf)
-- Class D to BB (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

DBRS Morningstar changed the trends on Classes C and X-B to Stable from Negative. Classes D and E continue to have Negative trends. All remaining classes have Stable trends, except for Class F, which does not carry a trend given its CCC (sf) rating.

The rating actions reflect the significant increase in defeasance as the two largest loans, Marcourt Net Lease Hotel Portfolio (Prospectus ID#1 – 10.8% of the trust balance) and KBR Tower (Prospectus ID#2 – 11.2% of the trust), fully defeased as of the January 2022 remittance report. As of the January 2022 remittance, there were a total of 29 loans, representing 46.7% of the trust balance, that were defeased. The Negative trends for Classes D and E continue to be warranted given the unknowns surrounding the increased risks for the loans in special servicing, particularly for the Newgate Mall loan (Prospectus ID#6 – 5.1% of the trust balance), which DBRS Morningstar expects will incur significant losses at resolution.

At issuance, the trust comprised 91 fixed-rate loans secured by 131 commercial properties with a trust balance of $1.46 billion. Per the January 2022 remittance, there are 77 loans secured by 94 properties remaining in the trust with a total trust balance of $1.14 billion for an approximate 21% collateral reduction since issuance. All loans, except for 1000 Harbor Boulevard (Prospectus ID#53 – 0.6% of the trust balance), are scheduled to mature in 2022 with most loan maturities occurring in Q4 2022. The nondefeased loan pool balance is concentrated by property type with 19 loans, totaling 48% of the nondefeased pool balance, secured by retail properties and an additional seven loans, totaling 19% of the nondefeased pool balance, secured by hotel properties. In addition, the remaining nondefeased loans are secured by properties primarily located in secondary and tertiary locations with a weighted-average DBRS Morningstar Market Rank of 3.8.

One loan, Virginia College (Prospectus ID#77), was liquidated from the trust in the months since DBRS Morningstar’s last full review of this transaction, with a $1.8 million loss realized in April 2021. DBRS Morningstar projected a loss of $2.6 million based on a hypothetical liquidation scenario in March 2021. One other loan, Hickory Commons (Prospectus ID#57), previously liquidated from the trust in December 2019 with a $415,365 realized loss.

As of the January 2022 remittance, three loans, totaling 13.6% of the trust balance, are in special servicing and an additional 15 loans, totaling 16.2% of the trust balance, are on the servicer’s watchlist. The largest specially serviced loan is Visalia Mall, which is secured by a regional mall in Visalia, California, approximately 40 miles southeast of Fresno. The loan transferred to the special servicer in May 2020 as the borrower was unable to secure a replacement loan for the June 2020 maturity date. The special servicer granted a forbearance that extended the maturity to June 2021 and a cash sweep was implemented as well. The loan was again extended to June 2022 when a refinance was not obtained by the first extension date.

The collateral was reappraised in June 2021 for a value of $89.4 million, up from the August 2020 appraised value of $86.2 million (implied LTV of 82.8% on the current loan balance), but still well below the $115.0 million appraised value at issuance. Prior to the pandemic, cash flows were consistently reported above the issuance levels, with a year-end 2019 debt service coverage ratio of 3.67 times (x), with the most recent coverage reported at 2.83x for the Q3 2021 reporting period. In addition to the high cover, the property benefits from recent sales figures as of the September 2021 sales report, which showed overall sales had rebounded above prepandemic levels. The lack of options for a refinance to date has likely been a product of the property’s tertiary location and the general hesitance regarding regional mall properties for financial institutions, particularly those located in noncore markets. However, the healthy sales performance and strong in-place cash flows with revenues comfortably above the issuance figures throughout the life of the loan should incentivize the loan sponsor, Brookfield Asset Management, to continue working with the servicer to resolve the outstanding maturity.

The Newgate Mall loan is secured by the in-line space and two anchor tenants of a single-level regional mall in Ogden, Utah. The loan transferred to the special servicer in March 2020, two months prior to its maturity date in May 2020. Since issuance, the mall has lost multiple anchors, which has negatively affected financial performance in recent years. The foreclosure sale occurred in March 2021 and the title was obtained by the trust. The special servicer plans to maintain occupancy while pursuing leasing opportunities with plans to dispose of the asset in Q1 2022. Broker interviews were underway as of January 2022. The property was reappraised in July 2021 for $20.7 million, slightly greater than the $20.0 million appraised value in November 2020, but well below the issuance appraised value of $83.0 million. DBRS Morningstar analyzed the loan with a liquidation scenario that resulted in an implied loss severity in excess of 75.0%.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-A and X-B are interest-only (IO) certificates that reference 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#3 – Visalia Mall (6.5% of the pool)
-- Prospectus ID#6 – Newgate Mall (6.5% of the pool) – DBRS Morningstar Hotlist Loan
-- Prospectus ID#9 – Sun Development Portfolio (2.1% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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