Fitch Ratings has affirmed all ratings of BANK 2018-BNK10 Commercial Mortgage Pass-Through Certificates, Series 2018-BNK10.
Fitch has also revised the Rating Outlook on class E and X-E to Negative from Stable.
RATING ACTIONS
ENTITY/DEBT RATING PRIOR
BANK 2018-BNK10
A-1 065404AW5
LT AAAsf Affirmed AAAsf
A-2 065404AX3
LT AAAsf Affirmed AAAsf
A-3 065404AY1
LT AAAsf Affirmed AAAsf
A-4 065404BA2
LT AAAsf Affirmed AAAsf
A-5 065404BB0
LT AAAsf Affirmed AAAsf
A-S 065404BC8
LT AAAsf Affirmed AAAsf
A-SB 065404AZ8
LT AAAsf Affirmed AAAsf
B 065404BD6
LT AA-sf Affirmed AA-sf
C 065404BE4
LT A-sf Affirmed A-sf
D 065404AA3
LT BBB-sf Affirmed BBB-sf
E 065404AC9
LT BB-sf Affirmed BB-sf
X-A 065404BF1
LT AAAsf Affirmed AAAsf
X-B 065404BG9
LT A-sf Affirmed A-sf
X-D 065404AN5
LT BBB-sf Affirmed BBB-sf
X-E 065404AQ8
LT BB-sf Affirmed BB-sf
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Increased Loss Expectations: Despite a majority of the pool exhibiting relatively stable performance, loss expectations have increased, driven primarily by a greater number of Fitch Loans of Concern (FLOCs) that have been impacted by the slowdown in economic activity related to the coronavirus pandemic. Fitch has designated nine loans (18.8% of pool) as FLOCs, including four specially serviced loans (3.9%). Fitch's current ratings incorporate a base case loss of 4.25%. The Negative Rating Outlook on class E factors in additional stresses related to the coronavirus pandemic and an outsized loss of 40% on the
The largest increase in loss since the prior rating action is the 14th largest loan, Courtyard Los Angeles Sherman Oaks (2.2%), which is secured by a 213-room full service hotel located in
The second largest increase in loss since the prior rating action is the ninth largest loan,
The third largest increase in loss since the prior rating action is the fourth largest loan,
One Newark Center (2.7%) is secured by a 417,939 sf office property built in 1992 and located in
(6.4%,
Alternative Loss Consideration: Fitch performed an additional sensitivity on the
Coronavirus Exposure: Fitch expects significant economic impact to certain hotels, retail and multifamily properties from the coronavirus pandemic, due to the sudden reductions in travel and tourism, temporary property closures and lack of clarity on the potential duration of the impact. The pandemic has prompted the closure of several hotel properties in gateway cities as well as malls, entertainment venues and individual stores. The hotel sector as a whole is expected to experience significant declines in RevPar in the near term due to a significant slow-down in travel. Additionally, retail properties are expected to face hardship as tenants may not be able to pay rent or as leases with upcoming expiration dates are not renewed given that many retailers are closed for business or have drastically reduced store hours.
Sixteen loans are backed by retail properties (23.1% of the pool), including three (9.5%) in the top 15. Hotel properties account for seven loans (14.3% of the pool), including three loans (11.0%) in the top 15. Two loans (7.5%) are secured by multifamily properties, including one (7.1%) in the top 15. Fitch's analysis applied additional stresses to seven hotel loans and three retail loans due to their vulnerability to the coronavirus pandemic. These additional stresses contributed to the Negative Outlook revisions on classes E and X-E.
Minimal Change to Credit Enhancement: As of the
Investment-Grade Credit Opinion Loans: At issuance, two loans had investment-grade credit opinions. Apple Campus 3 (7.4% of the pool) received a credit opinion of 'BBB-sf*' on a standalone basis. Moffett Towers II - Building 2 (3.2% of the pool) received a credit opinion of 'BBB-sf*' on a standalone basis.
RATING SENSITIVITIES
The Negative Outlooks on classes E and X-E reflects the additional sensitivity scenario applied to
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Factors that lead to upgrades would include stable to improved asset performance coupled with pay down and/or defeasance. An upgrade to classes B, C, and X-B could occur with continued paydown and improved pool performance, but would be limited as concentrations increase. Classes would not be upgraded above 'Asf' if there is likelihood of interest shortfalls. An upgrade to classes D and X-D could occur with significant improvement in CE and stabilization of the FLOCs. Upgrade of classes E and X-E is not likely until the later years of the transaction and only if the performance of the remaining pool is stable and/or properties vulnerable to the coronavirus return to pre- pandemic performance levels, and there is sufficient CE to the classes.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Factors that lead to downgrades include an increase in pool level losses from underperforming loans. Downgrades to the senior A-1, A-2, A-3, A-4, A-5 A-SB and A-S classes, along with class B, are not expected given their sufficient CE and expected increase in CE from amortization, but may occur if interest shortfalls occur or losses increase considerably. Downgrades to classes C, X-B, D, and X-D are possible should additional defaults occur or loss expectations increase. Downgrades to classes E and X-E are possible should pool performance decline, performing FLOCs fail to stabilize and/or the special serviced loans are unable to stabilize and values decline.
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.
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
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