Fitch Affirms GSMS 2014-GC20
KEY RATING DRIVERS
The affirmations are the result of the relatively stable pool performance of the pool. The Negative Outlooks on classes E and X-C are due to continued concerns surrounding two loans (10.3%) which are located in Houston's Energy Corridor, a market that continues to be affected by low oil prices. There have been no delinquent or specially serviced loans since issuance; including the Houston exposure, Fitch has designated seven Fitch Loans of Concern (19.7%).
As of the September 2016 distribution date, the pool's aggregate principal balance has been reduced by 2.25% to $1.16 billion from $1.18 billion at issuance. Interest shortfalls are currently affecting class H.
The largest Loan of Concern, Three WestLake Park (6.9% of the pool) is secured by a 19-story office building located in Houston's Energy Corridor. At issuance, it was nearly fully occupied by two tenants, ConocoPhillips (57.7% of the net rentable area [NRA]) and BP Amoco (40.8% of the NRA). BP has announced that it will not renew its lease, which is scheduled to expire in November 2016. A majority of BP's space at the property is already dark. Additionally, ConocoPhillips (recently downgraded by Fitch to 'A-'/Outlook Negative) maintains its headquarters less than two miles from the subject. The company recently laid off an estimated 500 employees in Houston and in February announced major cuts to quarterly dividends and capex spending. ConocoPhillips' lease extends through February 2019 with no termination options. While ConocoPhillips is expected to pay rent through its lease term, increased submarket vacancy and the current state of the oil and gas industry could make it challenging for the property manager to attract replacement tenants.
The second largest Loan of Concern, Chase Tower (6.9%) is a 21-story office building located in the Austin, Texas CBD. Occupancy declined to 90% as of March 2016 from 98% at YE2014 and 100% at issuance. There is an additional lease roll of 23% in 2017, including the largest tenant, Bury & Partners, which occupies 18.4% of the NRA.
The third largest Loan of Concern, Sheraton Suites Houston (3.4%) is secured by a full-service, 283-room hotel located in Houston, TX. The NOI for the 12 month period ending June 30, 2016 is below the Trigger Level, therefore a Cash Management Period is now in effect. The NOI DSCR for the six months ended June, 30 2016 declined to 1.44x from 1.75x at year-end 2015.
RATING SENSITIVITIES
The Rating Outlooks for the majority of the classes remain Stable. Upgrades are not expected without improved performance and increased credit enhancement. The Negative Outlooks for the class E and X-C certificates are a result of performance concerns for some of the pool's largest loans. Downgrades are possible should the collateral level changes described above prove material to the long-term stability of the pool.
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.
Fitch affirms the following classes and revises Outlooks as indicated:
--$36.2 million class A-1 at 'AAAsf'; Outlook Stable;
--$41.5 million class A-2 at 'AAAsf'; Outlook Stable;
--$176.8 million class A-3 at 'AAAsf'; Outlook Stable;
--$185 million class A-4 at 'AAAsf'; Outlook Stable;
--$272.4 million class A-5 at 'AAAsf'; Outlook Stable;
--$88.9 million class A-AB at 'AAAsf'; Outlook Stable;
--$72.4 million class A-S at 'AAAsf'; Outlook Stable;
--$78.3 million class B at 'AA-sf'; Outlook Stable;
--$0 class PEZ at 'A-sf'; Outlook Stable;
--$50.2 million class C at 'A-sf'; Outlook Stable;
--$59.1 million class D at 'BBB-sf'; Outlook Stable;
--$29.6 million class E at 'BB-sf'; Outlook Negative;
--$873.2 million* class X-A at 'AAAsf'; Outlook Stable;
--$78.3 million* class X-B at 'AA-sf'; Outlook Stable;
--$29.6 million* class X-C at 'BB-sf'; Outlook to Negative from Stable.
*Notional amount and Interest-Only.
Fitch does not rate the class F, G, H and X-D certificates.
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