Fitch Affirms IMSCI 2013-4; Removes 3 Classes from Rating Watch Negative
KEY RATING DRIVERS
The affirmations and removal of classes E, F and G from Rating Watch Negative reflect the overall stable performance of the pool (excluding the specially serviced asset). Additionally, the specially serviced asset along with the Fort McMurray hotel property in the pool did not sustain structural damage or loss from the recent Fort McMurray area wildfires. The pool balance has been reduced 6.2% to C$309.9 million from C$330.4 million at issuance with 33 loans remaining. There are no full or partial interest only loans in the pool. Approximately 40.9% of the pool has a scheduled maturity date in 2018, including the specially serviced loan. Of the remaining pool, 66.4% has full or partial recourse to the borrower and/or sponsor.
There was a variance from criteria related to class B for which the model output suggested that an upgrade was possible. Fitch determined that an upgrade was not warranted at this time as there remains uncertainty regarding the impact of the downturn in the energy market in Alberta on the performance of the full recourse specially serviced loan. Additionally, the overall pool performance has been stable and there have been limited loan payoffs and no defeased loans.
The specially serviced loan is the fifth-largest loan in the pool, Nelson Ridge (7%), which transferred to special servicing in March 2016. The property transferred to special servicing due a significant decline in occupancy stemming from the turmoil in the energy sector. The sponsor and special servicer agreed to a 12-month forbearance agreement. Operations at the property were subsequently affected by the Fort McMurray wildfires in early May 2016 with the city and surrounding area evacuated; however, tenants have subsequently returned as the property resumed operations. The servicer-reported rent roll as of July 31, 2016 indicated occupancy of 73%. The loan has full recourse to the borrower, sponsor and manager. Potential loan losses may be mitigated by recourse provisions, insurance proceeds and a recovery in the energy markets.
The largest portfolio, Toulon Portfolio (10.5% of the pool balance), consists of four cross-collateralized and cross-defaulted loans. The loans are secured by: two retail properties located in Yarmouth, Nova Scotia and Rouyn-Noranda, Quebec; one mixed-use property located in St. John's, Newfoundland; and one office building in Montreal, QC. The nonrecourse loans are sponsored by Toulon Development Corp., a full-service real estate firm with developments in eastern Canada, Quebec and Colorado in the U. S.
The second largest loan, Calloway Courtenay (8.9% of the pool), is secured by a participation in a 272,795-sf shopping center located in Courtenay, British Columbia. Courtenay is located on Vancouver Island, approximately 190 kilometers northwest of the city of Vancouver. The property, which was developed in 2001, is anchored by a Walmart Supercentre and is 100% occupied. Other major tenants include Sport Chek, Best Buy, Winners and Staples. The loan is sponsored by SmartREIT (formerly known as Calloway REIT), which has a public investment-grade rating. In addition, the loan is full recourse to the sponsor.
The Rating Outlook on classes E, F and G are Negative due to the uncertainty regarding the operations and performance of the specially serviced loan in addition to the transaction's total exposure to the volatility in the energy market Alberta (16% of the pool). Stable Outlooks reflect the stable performance of the majority of the pool and continued amortization. Upgrades may occur with improved pool performance and significant pay down or defeasance. Downgrades to the classes are possible should overall pool performance decline.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch has affirmed and removed the following classes from Rating Watch Negative and assigned a Negative Outlook as indicated:
--C$5 million class E at 'BBB-sf'; Outlook Negative;
--C$3.7 million class at F 'BBsf'; Outlook Negative;
--C$3.3 million class at G 'Bsf'; Outlook Negative.
Fitch affirms the following classes and revises Rating Outlooks as indicated:
--C$184.4 million class A-1 at 'AAAsf'; Outlook Stable;
--C$80 million class A-2 at 'AAAsf'; Outlook Stable;
--C$6.6 million class B at 'AAsf'; Outlook Stable;
--C$11.2 million class C at 'Asf'; Outlook Stable;
--C$9.1 million class D at 'BBBsf'; Outlook to Stable from Negative.
Fitch does not rate the C$6.6 million class H and the interest-only class X.