Research: Rating Action: Moody’s affirms six classes of WFCM 2018-C46

Approximately $515.9 million of structured securities affected

New York, July 26, 2022 — Moody’s Investors Service, (“Moody’s”)  has affirmed the ratings on six classes in Wells Fargo Commercial Mortgage Trust 2018-C46, Commercial Pass-Through Certificates, Series 2018-C46 as follows:

Cl. A-2, Affirmed Aaa (sf); previously on Oct 15, 2020 Affirmed Aaa (sf)

Cl. A-SB, Affirmed Aaa (sf); previously on Oct 15, 2020 Affirmed Aaa (sf)

Cl. A-3, Affirmed Aaa (sf); previously on Oct 15, 2020 Affirmed Aaa (sf)

Cl. A-4, Affirmed Aaa (sf); previously on Oct 15, 2020 Affirmed Aaa (sf)

Cl. A-S, Affirmed Aa2 (sf); previously on Oct 15, 2020 Affirmed Aa2 (sf)

Cl. X-A*, Affirmed Aaa (sf); previously on Oct 15, 2020 Affirmed Aaa (sf)

* Reflects interest-only classes

RATINGS RATIONALE

The ratings on the P&I classes were affirmed due to the credit support and because 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 8.4% of the current pooled balance, compared to 7.4% at Moody’s last review. Moody’s base expected loss plus realized losses is now 8.1% of the original pooled balance, compared to 7.3% 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 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 July 15, 2022 distribution date, the transaction’s aggregate certificate balance has decreased by 3.6% to $667.3 million from $692.1 million at securitization. The certificates are collateralized by 48 mortgage loans ranging in size from less than 1% to 8.2% of the pool, with the top ten loans (excluding defeasance) constituting 47.9% of the pool. One loan, constituting 5.7% of the pool, has an investment-grade structured credit assessment. Four loans, constituting 5.8% 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 27, down from 30 at Moody’s last review.

As of the July 2022 remittance report, loans representing 88.6% were current or within their grace period on their debt service payments, 1.6% were between 30 – 59 days delinquent, and 9.8% were more than 90 days delinquent, in foreclosure or REO.

Five loans, constituting 8.8% of the pool, are on the master servicer’s watchlist, of which two loans, representing 3.0% of the pool, indicate the borrower has received loan modifications in relation to 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.

No loans have been liquidated from the pool, and three loans, constituting 9.8% of the pool, are currently in special servicing, all of which have transferred to special servicing since March 2020.

The largest specially serviced loan is the 350 E. 52nd St Loan ($32.1 million – 4.8% of the pool), which is secured by the leasehold interest in a 137 unit apartment complex located in the Midtown East neighborhood of New York City. The property also includes 4,100 square feet (SF) of ground floor retail and an 80 space parking garage. The loan was placed on the watchlist in June 2020 due to delinquent payments and transferred to special servicing in October 2021 due to payment default. At the time, the borrower was involved in litigation regarding rent increases in relation to the J-51 tax abatement. The borrower has submitted a forbearance proposal, which is being reviewed by the special servicer. The servicer filed foreclosure and receiver motion in May 2022.

The second largest specially serviced loan is the Somerset Financial Center ($24 million – 3.6% of the pool), which represents a pari passu portion of a $42 million A-note. The loan is secured by a 230,000 SF office property located in Bedminster, NJ. At securitization, 83% of the property net rentable area (NRA) was occupied by Mallinckrodt, a major pharmaceutical manufacturer. In October 2020, Mallinckrodt filed for bankruptcy. The loan transferred to special servicing in January 2021 when Mallinckrodt rejected the lease, and foreclosure began in May 2021. In March 2021, the property was re-appraised at a 75% discount to the original appraised value. As of year-end 2021, the property was fully vacant. The borrower has submitted a discounted payoff proposal, which is being reviewed.

The third largest specially serviced loan is the 2415 Mission Street Loan ($9.4 million – 1.4% of the pool), which is secured by 32,500 SF mixed use property located in San Francisco, CA. The property contains 41 Single Room Occupancy (SRO) units, 11,000 SF of ground floor retail and 11,500 SF of storage space. The loan transferred to special servicing in July 2020 due to payment default. A new property manager has since been hired to stabilize the property, and began a new leasing program for the SRO units in January 2022. As of May 2022, the retail component was fully leased. The special servicer is still evaluating all options for resolution of the loan.

Moody’s has also assumed a high default probability for two poorly performing loans, constituting 1.6% of the pool, and has estimated an aggregate loss of $31.9 million (a 42% expected loss on average) from these specially serviced and troubled loans.

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 2020 operating results for 100% of the pool, and full year 2021 operating results for 97% of the pool (excluding specially serviced and defeased loans). Moody’s weighted average conduit LTV is 119%, the same as 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 14.8% to the most recently available net operating income (NOI), excluding hotel properties that had significantly depressed NOI in 2020 / 2021. Moody’s value reflects a weighted average capitalization rate of 9.9%.

Moody’s actual and stressed conduit DSCRs are 1.45X and 0.92X, respectively, compared to 1.47X and 0.90X 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 loan with a structured credit assessment is the Fair Oaks Mall Loan ($38.2 million – 5.7% of the pool), which represents a pari passu portion of a $164.6 million A-note. The property is also encumbered with a $80 million B-note. The loan is secured by a 780,000 SF portion of a 1.5 million SF regional mall located in Fairfax, VA. The non-collateral portion is anchored by a Macy’s with Furniture Gallery and JC Penny, as well as Dicks Sports and Dave & Busters that backfilled the space formerly occupied by Sear’s. The collateral portion is anchored by Macy’s, Forever 21 and H&M. The year-end 2020 and 2021 NOI declined significantly due to lower revenues, though DSCR remained over 2.0X for both years. As of March 2022, the property was 85% occupied, compared to 89% at year-end 2021 91% at year-end 2020. The loan has amortized 5.7% since securitization. Moody’s structured credit assessment and stressed DSCR are baa3 (sca.pd) and 1.38X, respectively.

The top three conduit loans represent 19.5% of the pool balance. The largest loan is the Ballantyne Loan ($55 million – 8.2% of the pool), which is secured by a 244 key luxury hotel located south of Charlotte, NC. Amenities at the property include 33,000 SF of event space, four pools, full service spa, multiple dining options and access to a non-collateral 18-hole golf course. The property did not generate sufficent cash flow to cover debt service in 2020, but performance began to recover in 2021 and is steadily improving, though it remains below the securitization NOI. Occupancy remains below pre-pandemic levels, though average daily rates remain comparable to pre-pandemic figures. The loan is interest only for its entire term. Moody’s LTV and stressed DSCR are 136% and 0.89X, respectively, same as at the last review.

The second largest loan is the Town Center Aventura Loan ($40 million — 6% of the pool), which represents a pari passu portion of an $80 million A-note. The loan is secured by a 186,100 SF grocery anchored shopping center located in Aventura, FL. The property is adjacent to the Aventura Mall, one of the premier shopping malls in the Miami area. It is anchored by a Publix supermarket and Sak’s & Co. NOI has underperformed since securitization, having never achieved the underwritten NOI. Operating expenses increased in 2021, including taxes, utilities and payroll expenses. As of March 2022, the property was 91% occupied, the same as at year-end 2021 and up from 88% at year-end 2020. The loan is interest only for its entire term.  Moody’s LTV and stressed DSCR are 142% and 0.66X, respectively, compared to 129% and 0.74X at the last review.

The third largest loan is the Silver Spring Plaza Loan ($35 million – 5.2% of the pool), which is secured by a 14 story, 242,800 SF class-A office building located in Silver Spring, MD. The tenant roster includes healthcare, technology and non-profit firms. Property NOI has declined since securitization due to lower base rents and occupancy. As of year-end 2021, the property was 74% occupied, compared to 83% at year-end 2020 and 87% at securitization. The loan is interest only for its entire term. Moody’s LTV and stressed DSCR are 129% and 0.84X, respectively, compared to 123% and 0.88X 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

Romina Padhi
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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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