Rating Action: Moody’s Assigns Definitive Ratings to Two Classes of the BX Commercial Mortgage Trust 2020-VIV4
Global Credit Research – 04 Jan 2021
$522.5 million of Structured Securities Affected
New York, January 04, 2021 — Moody’s Investors Service (“Moody’s”) has assigned definitive ratings to two classes of CMBS securities, issued by BX Commercial Mortgage Trust 2020-VIV4, Commercial Mortgage Pass-Through Certificates, Series 2020-VIV4:
Cl. A, Definitive Rating Assigned Aaa (sf)
Cl. X*, Definitive Rating Assigned Aaa (sf)
*Reflects Interest-Only Class
This transaction represents the fourth securitization backed by a portion of a $3,000,000,000, fixed-rate, whole loan collateralized by the borrower’s fee simple interests in two properties, the MGM Grand Hotel and Casino (“MGM Grand”) and Mandalay Bay Resort and Casino (“Mandalay Bay”) in Las Vegas, NV. Our ratings are based on the credit quality of the loans and the strength of the securitization structure.
The $3,000,000,000 whole mortgage loan is comprised of (i) $1,634,200,000 in aggregate A-Notes, (ii) $430,100,000 in aggregate Senior B-Notes, (iii) $374,300,000 in aggregate Junior B-Notes, and (iv) $561,400,000 in aggregate C-Notes. The A-Notes are generally senior in right of payment to the B-Notes and the C-Notes, and the B-Notes are generally senior in right of payment to the C-Notes. The B-Notes are divided into the Senior B-Notes and the Junior B-Notes. The Senior B-Notes are generally senior in right of payment to the Junior B-Notes and the C-Notes, and the Junior B-Notes are generally senior in right of payment to the C-Notes. The A-Notes are pari passu in right of payment with each other, the Senior B-Notes are pari passu in right of payment with each other, the Junior B-Notes are pari passu in right of payment with each other, and the C-Notes are pari passu in right of payment with each other.
The $550.0 million subject trust loan is comprised of $550.0 million in aggregate A-Notes.
A previous securitization, BX Commercial Mortgage Trust 2020-VIV3 is comprised of (i) $1,000,000 in aggregate A-Notes, and (ii) $429,715,000 in aggregate Senior B-Notes.
A previous securitization, BX Commercial Mortgage Trust 2020-VIV2 is comprised of (i) $794,861 in aggregate A-Notes, (ii) $208,628.50 in aggregate Senior B-Notes, and (iii) $374,146,510.50 in aggregate Junior B-Notes.
A previous securitization, BX Commercial Mortgage Trust 2020-VIVA is comprised of (i) $670,139.00 in aggregate A-Notes, (ii) $176,371.50 in aggregate Senior B-Notes, (iii) $153,489.50 in aggregate Junior B-Notes, and $561,400,000 in aggregate C-Notes.
The whole loan is being serviced and administered pursuant to the trust and servicing agreement of the BX Commercial Mortgage Trust 2020-VIVA transaction.
The MGM Grand is a AAA Four-Diamond, full-service luxury resort and casino property. It is the third largest hotel in the world, situated on over 101.9 acres of land and consisting of 4,998 guestrooms. The guestroom mix includes 4,270 standard guestrooms, 554 suites, 88 luxury suites, 51 Skyloft Suites (excluding one additional office unit), 30 Mansion Villas (lodging targeted for high-end gamblers), and four entourage rooms associated with the Mansion Villas. The hotel features approximately 177,268 SF of casino space that houses 1,553 slot machines and 128 gaming tables, numerous restaurants, approximately 748,325 SF of meeting space, an approximately 23,000 SF spa, four swimming pools and approximately 41,800 SF of retail space featuring 31 retailers. The MGM Grand is also home to multiple shows including Cirque du Soleil’s “Ka”, an acrobatic theater production that has been in residence at the MGM Grand since October 2004. The MGM Grand also has the David Copperfield Theatre, Hakkasan Nightclub and the MGM Grand Garden Arena, which has seating capacity of over 16,000 and hosts premier concerts, award shows, sporting events including championship boxing, and other special events.
The Mandalay Bay is a AAA Four-Diamond, full-service luxury resort and casino property. It is the premier conference hotel in Las Vegas with over 2.1 million SF of convention, ballroom, and meeting space, making it the 5th largest event space in the United States. Mandalay Bay is situated on over 124.1 acres of land and consists of 4,750 guestrooms. Included in the Mandalay Bay are (i) a Four Seasons Hotel with its own lobby, restaurants, pool, and spa, and (ii) The Delano, which is an all-suite hotel tower within the complex including its own spa, fitness center, lounge and restaurants. Mandalay Bay features 152,159 SF of casino space that houses over 1,232 slot machines and 71 gaming tables, numerous restaurants, an approximately 30,000 SF spa, 10 swimming pools, and approximately 54,000 SF of retail space featuring 41 retailers. Mandalay Bay is home to Cirque du Soleil’s Michael Jackson “One”, which has been in residence in a 1,805-seat showroom since 2013, a 12,000-seat special events arena, the House of Blues, and the Shark Reef Aquarium. Additionally, Mandalay Bay’s expansive pool and beach area plays host to an array of evening open air concerts during the pool season, a large wave pool, and Moorea, a European-style “ultra” beach and Daylight Beach Club.
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 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 whole loan first mortgage balance of $3,000,000,000 represents a Moody’s LTV of 79.6%. The Moody’s First Mortgage Actual DSCR is 4.37X and Moody’s First Mortgage Actual Stressed DSCR is 1.56X.
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. Each property received a property quality grade of 1.75, however, the Four Season’s within the Mandalay Bay received a property quality grade of 1.50.
Positive features of the transaction include the asset quality, recent refurbishments, location and strong sponsorship. However, the coronavirus outbreak resulted in MGM Resort International suspending operations for all of its Las Vegas properties for a period of time, including the MGM Grand and Mandalay Bay. MGM Grand reopened on June 4, 2020 and Mandalay Bay reopened on July 1, 2020. Additional offsets include property type volatility, lack of diversification, new supply, dependence on tourism, and credit negative 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 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 Ratings 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 U.S. 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.
We also regard gaming as a social risk under our ESG framework. High exposure to the gambling industry can subject some CMBS to unfavorable ESG societal and governance trends, and this is a material negative ratings consideration in combination with other mitigating credit factors.
Younger generations spend less time playing casino-style games than older generations, and gambling activities are increasingly performed online. Additionally, while gambling remains a popular expenditure, it is a highly discretionary segment of consumer demand. A further risk relates to responsible marketing and distribution, which can be a source of social responsibility failings where companies continue to promote their products to individuals already identified as problem gamblers.
While more prevalent outside the US, regulators have placed restrictions on betting amounts and gambling locations in response to pressure from lobby groups and local government desires to promote social responsibility, which limits profitability and increases compliance costs for gaming enterprises. Some US local governments are increasing “sin” taxes related to the gaming industry to compensate for reduced tax income.
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_1257549.
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.
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.
Joseph Podvarney, CFA 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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