Approximately $598 million of structured securities affected
New York, September 21, 2022 — Moody’s Investors Service, (“Moody’s”) has affirmed the ratings on five classes in Wells Fargo Commercial Mortgage Trust 2016-BNK1, Commercial Pass-Through Certificates, Series 2016-BNK1 as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Jan 30, 2020 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Jan 30, 2020 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Jan 30, 2020 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aa2 (sf); previously on Jan 30, 2020 Affirmed Aa2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on Jan 30, 2020 Affirmed Aaa (sf)
* Reflects Interest-Only Classes
RATINGS RATIONALE
The ratings on the P&I classes were affirmed because of their credit support and the transaction’s key metrics, including Moody’s loan-to-value (LTV) ratio, Moody’s stressed debt service coverage ratio (DSCR) and the transaction’s Herfindahl Index (Herf), are within acceptable ranges.
The rating on the IO class was affirmed based on the credit quality of the referenced classes.
Moody’s rating action reflects a base expected loss of 8.5% of the current pooled balance, compared to 6.3% at Moody’s last review. Moody’s base expected loss plus realized losses is now 8.1% of the original pooled balance, compared to 6.2% at the last review. Moody’s provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
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 can indicate that the collateral’s credit quality is stronger or weaker than Moody’s had previously expected. Additionally, significant changes in the 5-year rolling average of 10-year US Treasury rates will impact the magnitude of the interest rate adjustment and may lead to future rating actions.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool’s share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except the interest-only classes was “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056. The methodologies used in rating interest-only classes were “US and Canadian Conduit/Fusion Commercial Mortgage-Backed Securitizations Methodology” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/391056 and “Moody’s Approach to Rating Structured Finance Interest-Only (IO) Securities” published in February 2019 and available at https://ratings.moodys.com/api/rmc-documents/59126. 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 https://ratings.moodys.com for a copy of these methodologies.
DEAL PERFORMANCE
As of the August 15, 2022 distribution date, the transaction’s aggregate certificate balance has decreased by 5.9% to $819 million from $870.6 million at securitization. The certificates are collateralized by 39 mortgage loans ranging in size from less than 1% to 9.8% of the pool, with the top ten loans (excluding defeasance) constituting 59.8% of the pool. Two loans, constituting 19.5% of the pool, have investment-grade structured credit assessments. Two loans, constituting 1.9% of the pool, have defeased and are secured by US government securities.
Moody’s uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 20, down slightly from 21 at Moody’s last review.
As of the August 2022 remittance report, all loans were current on their debt service payments.
Six loans, constituting 20.5% of the pool, are on the master servicer’s watchlist, of which one loan, representing 2.1% of the pool, indicate the borrower has received loan modifications in relation to the coronavirus impact on the property. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody’s ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
One loan has been liquidated from the pool, resulting in an aggregate realized loss of $1.2 million (a loss severity of 25.8%). Two loans, constituting 11.5% of the pool, are currently in special servicing.
The largest specially serviced loan is the One Stamford Forum ($61.5 million 7.5% of the pool), which represents a pari passu portion of a $94.6 million whole loan. The loan a 13-story, 504,470 square foot (SF) class-A office building located in Stamford CT. At securitization the property was fully occupied by two tenants UBS (67% of the net rentable area (NRA)) and Purdue Pharmaceuticals (33% of NRA). Purdue had executed a “wrap-around” lease to lease all of UBS’s space upon their lease expiry in 2020. However, Purdue filed for bankruptcy in 2019 and the loan transferred to the special servicer in April 2019. As of year-end 2021, the property was only 54% occupied, with Purdue occupying 25% of the NRA on a new lease through 2023. The property’s 2021 net operating income (NOI) was negative due to the significant decline in rental revenues. Servicer commentary indicates the borrower is continuing leasing efforts while attempting to stabilize the property and discussing resolution options with the special servicer. As of the August 2022 remittance statement the borrower has remined currents on its debt service payment.
The second largest specially serviced loan is the Hilton Long Island Huntington loan ($32.7 million — 4% of the pool), which is secured by a 305 key located on Long Island, in Melville, NY. The property includes 24,600 SF of meeting and event space, an indoor and outdoor pool and two restaurants. The loan transferred to the special servicer in January 2021 due to imminent monetary default. The property’s 2020 NOI was negative due to impacts from the coronavirus pandemic and the was more than 90 days delinquent in January 2022. However, the borrower made the loan current in February 2022 and remained current as of the August 2022 remittance statement. The property’s cash flow has also begun to rebound with a 2021 NOI of $3.6 million resulting in a DSCR of 1.69X. The loan has amortized nearly 7% since securitization and servicer commentary indicates that the loan is pending return to the master servicer.
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.
Moody’s received full year 2021 operating results for 92% of the pool, and full or partial year 2022 operating results for 66% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 118%, compared to 112% at Moody’s last review. Moody’s conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody’s net cash flow (NCF) reflects a weighted average haircut of 15.5% to the most recently available net operating income (NOI), excluding hotel properties that had significantly depressed NOI in 2021. Moody’s value reflects a weighted average capitalization rate of 10.1%.
Moody’s actual and stressed conduit DSCRs are 1.52X and 0.97X, respectively, compared to 1.64X and 1.02X at the last review. Moody’s actual DSCR is based on Moody’s NCF and the loan’s actual debt service. Moody’s stressed DSCR is based on Moody’s NCF and a 9.25% stress rate the agency applied to the loan balance.
The largest loan with a structured credit assessment is the Shops at Crystals Loan ($80 million 9.8% of the pool), which represents the pari passu interest in a $387.2 million senior loan. The loan is also encumbered with a $167.3 million B-note. The loan is secured by a 262,600 SF shopping mall located on the Las Vegas strip, in Las Vegas, NV. It is attached to the Aria resort and Casino. The tenant base is exclusively luxury retailers, including Louis Vuitton, Prada, Hermes, Gucci and Fendi. There are also a number of fine dining options within the mall. As of year-end 2021, the property was 78% occupied, the same as year-end 2020. The average occupancy pre-pandemic since securitization was 89%. Despite the lower occupancy, the property’s 2021 NOI was the highest since securitization due to lower expenses as well as a major increase in percentage rents. Moody’s structured credit assessment and stressed DSCR are a2 (sca.pd) and 1.26X, respectively.
The second largest loan with a structured credit assessment is the Vertex Pharmaceuticals Headquarters Loan ($80 million 9.8% of the pool), which represents the pari passu interest in a $425 million whole loan. The loan is also encumbered by a $195 million mezzanine loan. The loan is secured by a two building, 1.1 million SF class-A office complex located in the Seaport district in Boston, MA. The property is 96% occupied by Vertex Pharmaceuticals through 2028. The remaining NRA is occupied by a mix of ground floor retail tenants. The portion occupied by Vertex is approximately 40% office use, 43% lab use and the remaining portion is mechanical and other uses. As of March 2022, the property was 100% occupied, the same as at securitization. The property’s NOI has generally increased year-over-year due to contractual rent escalations in the Vertex lease. Moody’s structured credit assessment and stressed DSCR are aa1 (sca.pd) and 1.52X, respectively.
The top three conduit loans represent 16.7% of the pool balance. The largest loan is the Renaissance Dallas Loan ($58.9 million 7.2% of the pool), which is secured by the Leasehold interest in a 514 key hotel located in Dallas, TX. It is adjacent to the 5.0 million SF Dallas Market Center, a major wholesale trade center. The property’s NOI was impacted by the coronavirus pandemic and the 2020 occupancy fell to 22% from 64% in 2019. In the 12-month (TTM) period ending March 2022, the hotel has begun to recover, with occupancy increasing to 39%, though NOI remains far below pre-pandemic levels. The TTM March 2022 NOI DSCR was 1.44X. The loan has amortized approximately 2% after an initial interest only period. Moody’s LTV and stressed DSCR are 129% and 0.95X, respectively, compared to 111% and 1.09X at the last review.
The second largest loan is the Pinnacle II ($40 million 4.9% of the pool), which represents the pari passu interest in an $87 million whole loan. The loan is secured by a six-story, 230,000 SF class-A office located in Burbank, CA. The property is fully occupied by Warner Brothers Entertainment, and in close proximity to Warner Brothers Studios. The tenant indicated they plan to vacate upon their lease expiration in October 2022, which would leave the property fully vacant. A dark value approach was utilized at this review to reflect the impending vacancy. Due to the failure of the tenant to extend their lease, the loan entered a cash trap period, and the loan now has a replacement reserve of approximately $9 million. Moody’s LTV and stressed DSCR are 161% and 0.67X, respectively, compared to 130% and 0.88X at the last review.
The third largest loan is the Brewer’s Hill Loan ($37.9 million 4.6% of the pool), which is secured by a 382,000 SF mixed-use property located in Baltimore, MD. The largest tenant is Canton Self Storage (29% of NRA), a 750 unit self storage property managed by CubeSmart. The next largest tenant is NexusVets (14% of NRA), a veterinary clinic. Occupancy fell to 77% during 2020, but as of March 2022 the occupancy increased to 100%. Furthermore, the March 2022 annualized NOI would be in line with expectations at securitization. The collateral is part of the larger Brewer’s Hill neighborhood, which includes non-collateral retail, gyms, restaurants and apartments. The loan has amortized 5% since securitization and Moody’s LTV and stressed DSCR are 121% and 0.89X, respectively, the same at the last review.
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 on https://ratings.moodys.com/rating-definitions.
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 did not use any stress scenario simulations in its analysis.
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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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://ratings.moodys.com/documents/PBC_1288235.
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 https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Kyle Austin Gray
Associate Lead 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
Matthew Halpern
VP – Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
