Fitch Ratings has downgraded four, affirmed 10 and revised the Rating Outlooks on six classes of Citigroup Commercial Mortgage Trust CGCMT 2016-P3 commercial mortgage pass-through certificates.
RATING ACTIONSENTITY/DEBT RATING PRIOR
CGCMT 2016-P3
A-2 29429CAB1
LT AAAsf Affirmed AAAsf
A-3 29429CAC9
LT AAAsf Affirmed AAAsf
A-4 29429CAD7
LT AAAsf Affirmed AAAsf
LT AAAsf Affirmed AAAsf
A-S 29429CAF2
LT AAAsf Affirmed AAAsf
B 29429CAG0
LT AA-sf Affirmed AA-sf
C 29429CAH8
LT A-sf Affirmed A-sf
D 29429CAM7
LT BB-sf Downgrade BBB-sf
E 29429CAP0
LT Bsf Downgrade BBsf
EC 29429CAL9
LT A-sf Affirmed A-sf
F 29429CAR6
LT CCCsf Downgrade Bsf
X-A 29429CAJ4
LT AAAsf Affirmed AAAsf
X-B 29429CAK1
LT AA-sf Affirmed AA-sf
X-D 29429CAV7
LT BB-sf Downgrade BBB-sf
VIEW ADDITIONAL RATING DETAILS
Class A-1 is paid in full.
KEY RATING DRIVERS
Increased Loss Expectations/Specially Serviced Loans: Since Fitch's last review, loss expectations for the pool have increased due to increased specially serviced loans and Fitch Loans of Concern (FLOCs), most of which is due to the impact of the coronavirus pandemic. Seven loans (21.2%) are currently in special servicing, including three (16.1%) within the top 15. Sixteen loans (50.9%) are considered FLOCs, including the specially serviced loans (21.2%) due to decline in performance as a result of the coronavirus pandemic and/or occupancy declines due to tenants vacating and upcoming rollover concerns. The downgrade reflects an increase in the likelihood of losses to classes D, X-D, E, and F given these concerns. Fitch's current ratings incorporate a base case loss of 9.1%. The Negative Rating Outlooks factor in additional stresses related to the coronavirus pandemic, reflecting losses that could reach 12.1%.
The top five largest contributors to loss expectations:
The mall has also experienced fluctuating in-line and anchor sales in addition to new retail competition directly north of subject. The most recent reported in-line sales were
Fitch's ratings reflect an analysis that includes a 12% cap rate and 20% stress to the YE 2019 net operating income (NOI) to reflect concerns with increasing vacancy and tenant rollover. An additional sensitivity scenario assumed a 20% cap rate and 20% stress to YE 2019 NOI to reflect the potential for continued performance issues due to the pandemic.
The specially serviced
The loan was transferred to special servicing in
The specially serviced loan,
Fitch's analysis included an overall 30% stress to YE 2018 NOI to address tenant volatility. Credit was given to the asset's high-quality location, the positive co-tenancy impact of Target's lease, and
The specially serviced loan,
A foreclosure complaint was filed on
The specially serviced loan, Home2Suites
The property had been closed from
Increased Credit Enhancement: As of the
Fitch performed an additional sensitivity on the largest loan,
Coronavirus Exposure: There are 10 loans (25.7%) secured by retail properties, including the largest loan in the pool (8.8% of the pool). The retail element of the pool consists of one regional mall (largest loan in the pool 8.8%), and a mix of unanchored and anchored shopping centers. Hotels comprise 21.5% of the pool, including three (16.1%) loans in the top 15. Fitch is monitoring the performance of these assets given the negative outlook and expectation that hotel performance will be significantly impacted by a reduction in travel. Fitch's base case analysis applied an additional NOI stress on five retail loans and three hotels due to the expected decline in travel from the pandemic. These additional stresses contributed to the Negative Outlooks on classes A-S, B, C, D, E, X-A, X-B and X-D.
Credit Opinion Loan: One loan,
Pari Passu Loans: Approximately 56.6% of the pool, including nine of the top 10 loans, consists of loans with pari passu participations.
RATING SENSITIVITIES
The Negative Outlooks on classes A-S, X-A, B, X-B, C, EC, D, X-D, and E reflect the potential for a near-term rating downgrades should the performance of the specially serviced and FLOCs continue to deteriorate. The Negative Outlooks also reflect concerns with hotel and retail properties due to declines in travel and commerce as a result of the pandemic. The Stable Outlooks on all other classes reflects the overall stable performance of the remainder of the pool.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Sensitivity factors that lead to upgrades would include stable to improved asset performance coupled with paydown and/or defeasance. Upgrades of classes B, X-B, C, and EC would only occur with significant improvement in CE and/or defeasance, but would be limited unless the specially serviced and FLOCs stabilize. An upgrade to classes D, X-D, E and F is not likely until the later years in a transaction and only if the performance of the remaining pool is stable and/or if there is sufficient CE, which would likely occur when the senior classes payoff and if the non-rated classes are not eroded. While uncertainty surrounding the coronavirus pandemic and the resolution of the
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Sensitivity factors that lead to downgrades include an increase in pool level losses from underperforming or specially serviced loans. Downgrades to classes A-3, A-4,
Downgrades to classes C and EC would occur should overall pool losses increase and/or one or more large loans, such as
Downgrades to classes D, X-D, and E would occur should loss expectations increase due to an increase in specially serviced loans or an increase in the certainty of a loss on a specially serviced loan. The distressed class F could be further downgraded should losses be realized or become more certain. The Negative Outlooks may be revised back to Stable if performance of the FLOCs and specially serviced loans improves and/or properties vulnerable to the pandemic stabilize once the health crisis subsides.
In addition to its baseline scenario, Fitch also envisions a downside scenario where the health crisis is prolonged beyond 2021; should this scenario play out, Fitch expects that a greater percentage of classes may be assigned a Negative Outlook, or those with Negative Outlooks will be downgraded one or more categories. For more information on Fitch's original rating sensitivity on the transaction, please refer to the new issuance report at www.fitchratings.com.
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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
APPLICABLE CRITERIA
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub.
Global Structured Finance Rating Criteria (pub.
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
CMBS Conduit Surveillance Model, v1.19.4 (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
CGCMT 2016-P3 EU Endorsed,UK Endorsed
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