Sector developments and company hires

Downgrades for ‘lower quality’ mall CMBS
Moody's has downgraded 119 principal and interest, 26 interest-only and 11 exchangeable classes from 36 US CMBS and placed eleven P&I, one exchangeable and three IO classes under review for possible downgrade from a further two CMBS. The rating actions affect approximately US$6.2bn of securities and were prompted primarily by increased loss expectations and higher interest shortfall risk to the transactions, due to the continued cashflow and value deterioration for specially serviced, delinquent or otherwise poorly performing loans secured by lower quality regional malls.

For regional mall loans contributing to this action that have reported at least six months of annualised 2020 NOI, the NOI was on average 16% lower than full-year 2019 NOI. Moody’s reports that borrowers of certain poorly performing CMBS loans have indicated that they intend to cooperate with foreclosure proceedings and/or are unwilling to inject additional cash to support these assets. For regional mall assets that are undergoing foreclosure or are already classified as REO, the agency anticipates that the acceleration of dispositions in the next 12 months and the ultimate liquidations of these assets may result in significant losses.

As of the March 2021 remittance reports, the share of specially serviced loans secured by all property types for the impacted transactions averaged 20% and ranged up to 42% of their respective pooled transaction balances. The downgrades also reflect heightened refinancing risk among these poorly performing loans; in particular, seven 2011 transactions where nearly all of the remaining loans have maturity dates in the next six to eight months.

Meanwhile, the ratings on the 26 IO classes were downgraded due to a decline in credit quality of their referenced classes. The ratings on the 11 exchangeable classes were downgraded due to a decline in credit quality of their referenced exchangeable classes.

The downgraded tranches included in this action represent approximately 2% by balance and 5% by count of the outstanding conduit CMBS tranches Moody's rates. Of the impacted deals, 35 were issued between 2011 and 2016, while one was issued in 2006 - in which a regional mall represents 94% of the remaining collateral.

EMEA
Martijn van der Molen has joined Christofferson Robb & Company as md in its portfolio management group, based in London. He was previously senior director, credit and insurance-linked investments at PGGM. Before that, he worked at Citi, UBS and JPMorgan.

Spanish RMBS stress tested
High credit enhancement and robust structural protections mitigate the rating impact of slower and smaller recoveries and higher defaults in Spanish RMBS under a range of stress scenarios, Fitch notes. In the most severe stress scenario, 67% of tranches would be downgraded on average by three notches, but no investment-grade bonds would drop into sub-investment-grade territory.

The rating agency’s stress tests – which were run on a sample of eight out of 28 prime transactions from seven originators issued between 2008 and 2020 - measure the rating impact of shocks beyond those in its criteria. The first scenario extends standard recovery times by two years, while the second reduces recoveries by 30% from Fitch’s criteria expectation. The third combines a one-year recovery time extension, a 15% rise in defaults and a 15% reduction in recoveries.

UK mid-market lender launched
A new alternative lender has launched to provide credit and critical working capital funding to mid-market UK businesses. Blazehill Capital is backed by a number of high-profile investors, including global credit investment firm WAFRA Capital Partners.

Blazehill Capital provides asset-based finance ranging from £5m to £30m per transaction and aims to build a lending book of over £1bn in five years.

The core Blazehill Capital team has over 40 years’ direct lending experience and is led by md Tom Weedall. He previously held various leadership roles at US asset-based lenders, including Wells Fargo and GE Capital, where he sourced and closed a number of transactions in excess of £800m.