Rating Action: Moody's assigns ratings to three classes of notes issued by Prima Capital CRE Securitization 2020-VIII Ltd.
New York, July 16, 2020 -- Moody's Investors Service ("Moody's") has assigned ratings to three class of notes issued by Prima Capital CRE Securitization 2020-VIII Ltd. (the "Issuer"):
Cl. A, Assigned Aaa (sf) Cl. B, Assigned A3 (sf) Cl. C, Assigned Ba3 (sf)
The Cl. A, B and C notes are referred to herein as the "Rated Notes."
The rationale for the ratings is based on our methodology and considers all relevant risks, particularly those associated with the CRE CLO's portfolio and structure.
Prima Capital CRE Securitization 2020-VIII Ltd. is a cash flow commercial real estate CLO ("CRE CLO") that does not have a reinvestment option; and 100% of the assets are identified and closed as of the transaction closing date. The closing date pool is collateralized by 12 collateral interests (12 obligors) in the form of: i) single asset/single borrower commercial real estate bonds (CMBS and B-Notes), primarily secured by industrial, office and multifamily properties (76.5% of the initial pool balance) and ii) whole loans on commercial real estate secured by industrial properties (23.5%). Approximately 2.7% of the collateral assets are currently rated by Moody's and the other 97.3% of the collateral assets were provided an assessment of credit. The total closing date par amount is $203,106,729. The closing date portfolio consists of 76.5% fixed rate obligations with a 3.71% weighted average coupon. There are two floating rate assets (23.5% of the portfolio balance) with a weighted average spread of 1.50% over 1-month LIBOR.
The transaction closed on July 15, 2020.
PMIT Master Fund, LLC is the collateral seller of all the assets in the pool. Prima Capital Advisors LLC will act as trust advisor pursuant to the indenture and will perform certain reporting duties for the benefit of the noteholders. As the transaction is static, unscheduled principal payments and sale proceeds of credit risk and defaulted assets will be used to pay down the notes per the transaction waterfall.
In addition to the Rated Notes, the Issuer will issue one class of subordinated notes and one class of preferred shares.
The transaction incorporates par coverage and interest coverage tests which, if triggered, diverts interest proceeds to pay down the notes in order of seniority.
Moody's has identified the following parameters as key indicators of the expected loss within CRE CLO transactions: weighted average rating factor (WARF), a primary measure of credit quality with credit assessments completed for all of the collateral, weighted average life (WAL), weighted average recovery rate (WARR), number of asset obligors; and pair-wise asset correlation. These parameters are typically modeled as actual parameters for static deals and as covenants for managed deals.
For modeling purposes, Moody's used the following base-case assumptions:
Par amount: $203,106,729
Number of obligors: 12
Weighted Average Rating Factor (WARF): 2885
Weighted Average Recovery Rate (WARR): 35.85%
Weighted Average Life (WAL): 7.19 years
Weighted Average Spread (WAC): 3.22%
Weighted Average Coupon (WAS): n/a
Pair-wise asset correlation: 35.0%
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Approach to Rating SF CDOs" published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1231934. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Factors That Would Lead to a Downgrade of the Rating:
The performance of the Rated Notes is subject to uncertainty. The performance of the Rated Notes is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The administrator's investment decisions and management of the transaction will also affect the performance of the Rated Notes.
Together with the set of modeling assumptions above, Moody's conducted an additional sensitivity analysis, which was a component in determining the ratings assigned to the Rated Notes. This sensitivity analysis includes increased default probability relative to the base-case.
Primary sources of assumption uncertainty are the extent of growth in the current macroeconomic environment.
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 US 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_1237345.
The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the 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.
Scarlett Shao Asst Vice President - 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 Deryk Meherik Senior Vice President/Manager 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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