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Credit FAQ: A Closer Look At 'AAA (sf)' Rated A-S And A-M Classes Within Recent Vintage Conduit CMBS Transactions

S&P Global Ratings recently assigned a 'AAA (sf)' rating to the class A-S certificates from CGCMT 2019-GC41, a conduit commercial mortgage-backed securities (CMBS) transaction, the first A-S/A-M class to receive a 'AAA (sf)' rating from S&P Global Ratings since a similar class in BANK 2018-BNK12 in May 2018. In "Buyers Lobby for More 'AAA' Bonds," published in the Aug. 2, 2019, edition of Commercial Mortgage Alert, it was noted that the issuers of the deal may have been prompted by "reverse inquiries" from buyers willing to trade spread for liquidity to structure the deal with enough credit enhancement to achieve the 'AAA (sf)' rating. In total, we have rated 51 conduit CMBS since 2016, and ratings on the A-S/A-M class have varied, as shown in chart 1.

Chart 1

image

More recently, BANK 2019-BNK20 and GSMS 2019-GC42, priced in mid-September, both featured A-S/A-M classes rated 'AAA (sf)' as well. With the recent bump in 'AAA (sf)' rated A-S and A-M certificates, we are publishing this brief Credit FAQ to provide some more information--and address some frequently (and recently) asked questions from investors--on the topic. Further, we include an Appendix with deal-by-deal details of those (S&PGR-rated) transactions with A-S or A-M classes.

Frequently Asked Questions

Can you provide some summary statistics regarding S&PGR's ratings on recent vintage A-S/A-M classes?

Overall, we have rated 51 conduit CMBS offerings within the 2016-2019 vintages, including 19 this year. Of those 51 transactions, 13 featured A-S or A-M classes with 'AAA (sf)' ratings (25%), 28 had A-S or A-M classes rated in the 'AA (sf)' category (55%), and 10 (20%) had A-S or A-M classes that were unrated.

Table 1

2016-2019 Vintage Summary/Averages For S&PGR-Rated Deals
A-S or A-M class rating Deal count (no.) % of count S&P Global Ratings' LTV (%) HERF CE (%)
'AAA' 13 25 84.0 25 20.5
'AA+' 12 24 86.0 25 20.3
'AA' 12 24 90.9 26 20.8
'AA-' 4 8 92.5 27 20.6
NR 10 20 89.8 29 20.4
Source: S&P Global Ratings. LTV--Loan to value. HERF--Herfindahl score. CE--Credit enhancement. NR--Not rated.
Are there any observations vis-à-vis the headline credit metrics of a deal to take away from said summary statistics?

There appears to be some correlation between average S&P Global Ratings' loan to value (LTV) and our rating on the A-S and A-M class in these vintages. The deals with 'AAA (sf)', 'AA+ (sf)', 'AA (sf)', and 'AA- (sf) rated A-S/A-M classes had (simple) average S&P Global Ratings' LTVs of about 84%, 86%, 91%, and 92.5% (albeit with a smaller sample size compared to the others), respectively. That said, we always caution that each deal/class is evaluated individually, and averages don't always tell the whole story. To wit, the 13 classes within our 'AAA (sf)' sample exhibit S&P Global Ratings' LTVs ranging from 75% to 94%. Observations by diversification (measured by Herfindahl score/effective loans) and credit enhancement were relatively less conclusive.

In 10 Instances, the A-S/A-M classes were not rated by S&P Global Ratings. Does this imply that the rating on the classes within these deals would have been below the 'AA' category?

No. All that this means is that we were not asked to rate that particular class within the deal.

Have you observed any patterns over time regarding your ratings for this class?

Yes. The percentage of deals with 'AAA (sf)' rated A-S/A-M classes fell pretty sharply between the 2016/2017 and 2018/2019 vintages.

Table 2

Vintage Summary
Vintage S&PGR-rated deal count (no.) Included 'AAA (sf)' rated A-S/A-M class (no.) % by vintage
2016 3 2 67
2017 10 5 50
2018 19 3 16
2019(i) 19 3 16
(i)Year to date. Source: S&P Global Ratings.

Although our ratings depend on more than just leverage, this drop may be a consequence of the average S&P Global Ratings' LTVs increasing over time: the 2018/2019 average is around 89%, while the 2016/2017 average was closer to 83%.

Appendix: S&PGR-Rated Deal-By-Deal Details

Appendix

Deal-By-Deal Detail
Deal name Pricing date A-S or A-M class credit enhancement S&P Global Ratings' credit rating on class A-S/A-M

CSAIL 2019-C17 Commercial Mortgage Trust

9/17/2019 24.13 'AA'

GS Mortgage Securities Trust 2019-GC42

9/16/2019 20.50 'AAA'

BANK 2019-BNK20

9/13/2019 17.50 'AAA'

CD 2019-CD8 Mortgage Trust

8/9/2019 23.75 'AA+'

Citigroup Commercial Mortgage Trust 2019-GC41

8/5/2019 21.13 'AAA'

BANK 2019-BNK19

7/23/2019 17.63 'AA+'

Benchmark 2019-B12 Mortgage Trust

7/19/2019 17.50 'AA'

Morgan Stanley Capital I Trust 2019-H7

7/15/2019 21.63 'AA-'

GS Mortgage Securities Trust 2019-GC40

6/26/2019 18.75 'AA-'

JPMCC Commercial Mortgage Securities Trust 2019-COR5

6/12/2019 21.75 'AA'

Morgan Stanley Capital I Trust 2019-H6

6/5/2019 20.75 'AA'

Benchmark 2019-B11 Mortgage Trust

5/22/2019 18.00 'AA'

BBCMS Mortgage Trust 2019-C3

5/17/2019 20.63 'AA'

CF 2019-CF1 Mortgage Trust

4/16/2019 20.88 'AA'

Benchmark 2019-B10 Mortgage Trust

3/21/2019 20.13 'AA-'

BANK 2019-BNK17

3/21/2019 19.75 'AA+'

Morgan Stanley Capital I Trust 2019-L2

3/1/2019 21.00 'AA'

GS Mortgage Securities Trust 2019-GC38

2/13/2019 22.00 'AA'

Benchmark 2019-B9 Mortgage Trust

2/1/2019 22.63 NR

Morgan Stanley Capital I Trust 2018-H4

12/14/2018 21.88 'AA-'

Benchmark 2018-B8 Mortgage Trust

12/10/2018 20.25 NR

BBCMS Mortgage Trust 2018-C2

12/4/2018 20.50 'AA'

Benchmark 2018-B7 Mortgage Trust

11/9/2018 21.75 NR

DBGS 2018-C1 Mortgage Trust

10/18/2018 18.50 NR

Benchmark 2018-B6 Mortgage Trust

9/20/2018 18.50 NR

BANK 2018-BNK14

9/18/2018 18.13 'AA+'

CD 2018-CD7 Mortgage Trust

8/2/2018 21.63 'AA'

Benchmark 2018-B5 Mortgage Trust

7/27/2018 19.75 NR

BANK 2018-BNK13

7/23/2018 20.38 'AA+'

GS Mortgage Securities Trust 2018-GS10

7/18/2018 21.25 'AA+'

Benchmark 2018-B4 Mortgage Trust

6/28/2018 20.38 NR

Morgan Stanley Capital I Trust 2018-H3

6/27/2018 21.13 'AA'

JPMDB Commercial Mortgage Securities Trust 2018-C8

5/23/2018 21.00 'AA+'

BANK 2018-BNK12

5/15/2018 20.25 'AAA'

BANK 2018-BNK11

4/13/2018 24.13 'AAA'

Benchmark 2018-B3 Commercial Mortgage Trust

3/23/2018 22.25 NR

Benchmark 2018-B2 Mortgage Trust

2/9/2018 19.00 NR

Benchmark 2018-B1 Mortgage Trust

1/19/2018 21.38 'AAA'

CSAIL 2017-CX10 Commercial Mortgage Trust

11/17/2017 19.13 'AAA'

UBS Commercial Mortgage Trust 2017-C4

9/29/2017 19.50 'AA+'

CSAIL 2017-CX9 Commercial Mortgage Trust

9/19/2017 18.13 'AAA'

Citigroup Commercial Mortgage Trust 2017-P8

9/18/2017 19.25 'AAA'

UBS Commercial Mortgage Trust 2017-C2

7/31/2017 18.50 'AA+'

BANK 2017-BNK6

7/14/2017 19.00 'AAA'

DBJPM 2017-C6 Mortgage Trust

6/14/2017 20.50 'AA+'

CD 2017-CD4 Mortgage Trust

4/28/2017 21.75 'AA+'

JPMDB Commercial Mortgage Securities Trust 2017-C5

3/17/2017 21.00 NR

Wells Fargo Commercial Mortgage Trust 2017-RC1

2/28/2017 22.25 'AAA'

Morgan Stanley Capital I Trust 2016-BNK2

11/4/2016 22.38 'AAA'

Morgan Stanley Capital I Trust 2016-UBS11

8/12/2016 21.63 'AA+'

Wells Fargo Commercial Mortgage Trust 2016-BNK1

8/4/2016 21.88 'AAA'
NR--Not rated.

This report does not constitute a rating action.

Global Structured Finance Research:James M Manzi, CFA, Washington D.C. (1) 434-529-2858;
james.manzi@spglobal.com
Global Sector Lead, CMBS:Senay Dawit, New York + 1 (212) 438 0132;
senay.dawit@spglobal.com

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