Fitch Downgrades COMM 2012-CCRE4

Fitch Ratings has downgraded one and affirmed nine classes of Deutsche Bank Securities, Inc.'s COMM 2012-CCRE4 commercial mortgage pass-through certificates, series 2012-CCRE4.

The Rating Outlooks for two classes have been revised to Stable from Negative.

RATING ACTIONS

Entity / Debt

Rating

Prior

COMM 2012-CCRE4

A-3 12624QAR4

LT

AAAsf

Affirmed

AAAsf

A-M 12624QAT0

LT

A-sf

Affirmed

A-sf

A-SB 12624QAQ6

LT

AAAsf

Affirmed

AAAsf

B 12624QBA0

LT

CCCsf

Downgrade

B-sf

C 12624QAC7

LT

Csf

Affirmed

Csf

D 12624QAE3

LT

Dsf

Affirmed

Dsf

E 12624QAG8

LT

Dsf

Affirmed

Dsf

F 12624QAJ2

LT

Dsf

Affirmed

Dsf

X-A 12624QAS2

LT

A-sf

Affirmed

A-sf

Page

of 2

VIEW ADDITIONAL RATING DETAILS

KEY RATING DRIVERS

High Loss Expectations: Fitch's loss expectations are high due to expected losses on the remaining mall asset in the pool, the Eastview Mall and Commons. The downgrade reflects refinance concerns related to the large outstanding total debt of $210 million, of which $120 million was contributed to this transaction, and the upcoming maturity in September 2022.

Fitch's analysis included a paydown scenario assuming the Eastview Mall and Commons is the last remaining loan in the pool. In addition, higher expected losses were applied pool-wide to address the majority of loans' maturing this year. Fitch has identified four loans (21.1%) as Fitch Loans of Concern (FLOCs) with no loans in special servicing.

Fitch's current ratings incorporate a base case loss of 11.20%. The Stable Outlooks on the investment grade classes reflect the expectation of repayment from performing loans in the pool maturing this year given their performance and lower leverage, while the distressed classes account for the potential for loss from the Eastview Mall and Commons loan.

Mall of Concern/Largest Contributor to Loss: The largest FLOC and largest contributor to loss is the Eastview Mall and Commons (17.8% of the pool). It is secured by 802,636 sf of a 1.7 million-sf regional mall and power center in Victor, NY. The loan, which is sponsored by Wilmorite Properties, had previously transferred to special servicing in May 2020 due to distress from the pandemic, but was subsequently brought current and returned to the master servicer in July 2020. The loan has remained current since returning to the master servicer.

The YE 2021 servicer-reported net operating income (NOI) was 6% below YE 2020 and 33% below issuance. Collateral occupancy and servicer-reported NOI debt service coverage ratio (DSCR) for this IO loan were 79% and 1.44x at YE 2021, down from 83% and 1.52x at YE 2020, 90% and 1.81x at YE 2019 and 94% and 2.19x at issuance.

Non-collateral Sears closed in the fourth quarter of 2018 and non-collateral Lord & Taylor closed in the first quarter of 2021. The former non-collateral Sears space was backfilled by Dick's new experiential concept, Dick's House of Sports, which includes a rock-climbing wall, high-tech batting cage, virtual golf driving bays, and a 17,000-sf outdoor turf field and running track to host sports events which can be used as an ice arena in the winter. The mall portion is anchored by non-collateral JCPenney, non-collateral Macy's and non-collateral Von Maur, and the power center portion is anchored by non-collateral Home Depot and non-collateral Target. The largest collateral tenant is Regal Cinemas, which leases approximately 9.4% net rentable area through February 2026.

Fitch's base case loss expectation of 55% reflects a 15% cap rate on the YE 2021 NOI and represents performance and imminent refinance concerns. The loan's interest rate is 4.625%.

Increasing Credit Enhancement (CE) Offset by Higher Realized Losses: CE has increased since issuance due to amortization and loan repayments, with 39.1% of the original pool balance repaid. Additionally, 27.3% of the pool has been defeased. Since issuance, 16 loans have been liquidated contributing to realized losses of $102.9 million affecting classes D through G. Interest shortfalls are also currently affecting classes D through G. All loans are scheduled to mature this year with 23.9% of the pool maturing in the third quarter and 76.1% in the fourth quarter.

Since the prior rating action, the Emerald Square loan, which was secured by 564,501-sf of a 1.02 million sf regional mall in North Attleboro, MA, was disposed with a high loss. The loan was in special servicing prior to liquidation and was resolved with losses of $24.9 million reflecting a loss severity of 62.3% based on the original loan balance. The recovery was less than appraisal values at the time of review, but was within the range of Fitch's sensitivity analysis, which reflected regional mall refinance concerns and persistent underperformance. Additionally, the prior liquidation of the Fashion Outlets of Las Vegas, which was previously the third largest loan in the pool, contributed to losses on the bottom classes.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Downgrades to the 'AAAsf' rated categories are not likely due to the senior positions in the capital structure and imminent paydown that is expected from the majority of the pool that matures in the coming months.

Downgrades to the 'A-sf' rated category, while unlikely, would occur should overall pool losses increase with loans failing to repay at their respective maturities and the remaining mall asset incurs outsized losses beyond current estimates. The distressed 'Csf' and 'CCCsf' rated categories would be downgraded as losses become more certain or as realized.

Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the Russia-Ukraine war whereby growth is sharply lower amid higher inflation and interest rates; even if the adverse scenario should play out, Fitch expects virtually no impact on ratings performance, indicating very few rating or Outlook changes. However, for some transactions with concentrations in underperforming retail exposure, the ratings impact may be mild to modest, indicating some changes on sub-investment grade notes.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Factors that could lead to upgrades would include stable to improved asset performance coupled with pay down and/or defeasance. Upgrades of the investment grade rated categories would occur with significant improvement in CE and/or defeasance. Classes would not be upgraded above 'Asf' if there is likelihood for interest shortfalls.

Upgrades to the 'CCCsf' and 'Csf' rated categories are not likely to reflect risks related to loans unable to refinance at maturity and the uncertainty of losses for the Eastview Mall and Commons loan remaining in the pool.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.