CHICAGO--(BUSINESS WIRE)--Fitch Ratings has assigned the following ratings and Rating Outlooks to SCG 2013-CWP Hotel Issuer Inc., commercial pass-through certificates, series 2013-CWP (all currency amounts are Canadian dollars unless noted otherwise):
--$42,000,000 class A-1 'AAAsf'; Outlook Stable;
--$188,000,000 class A-2 'AAAsf'; Outlook Stable;
--$25,000,000 class B 'AAsf'; Outlook Stable;
--$40,000,000 class C 'Asf'; Outlook Stable;
--$65,000,000 class D 'BBBsf'; Outlook Stable;
--$40,000,000 class E 'BBB-sf'; Outlook Stable;
--$400,000,000* class X 'NR'.
* Notional amount and interest-only.
The certificates represent the beneficial interests in the mortgage loan securing the Westin Calgary, Westin Harbour Castle (Toronto), Westin Ottawa, Westin Bayshore (Vancouver) and Westin Edmonton with a total of 2,925 rooms. Proceeds of the loan along with additional mezzanine financing were primarily used to acquire the properties, referred to as the Canada Westin Portfolio (CWP), from PSP Investments (PSP), fund reserves and pay closing costs. The certificates will follow a sequential-pay structure.
KEY RATING DRIVERS
Fitch Leverage: Fitch's stressed debt service coverage ratio (DSCR) and loan to value (LTV) for the trust component of the debt are 1.41x and 73.9%, respectively. The DSCR and LTV based on the total debt stack including the $80 million mezzanine loan are 1.17x and 89%, respectively.
Asset Quality and Location: The CWP received Fitch property quality scores of A to B+. The assets are well-located in the downtown core of five of Canada's six largest cities. All five assets achieved revenue per available room (RevPAR) penetrations above 100% in 2012, and a trailing 12-month (TTM) June 2013 average at 117%. Between 2005 and 2012, the properties underwent approximately $181 million ($61,887 per key) in capital expenditures. This includes $51 million during the past 36 months. Because of the recent capital investments, no Property Improvement Plans (PIPs) were required upon the sponsor's purchase of the portfolio.
Sponsor Equity: The sponsor will invest approximately $315 million of cash equity in the transaction, after accounting for the subordinate mezzanine financing, closing costs and funding of upfront reserves. The cash equity represents 40% of the $795 total cost.
Canadian Loan Historical Performance: The ratings reflect strong historical Canadian commercial real estate loan performance, including a low delinquency rate and low historical losses. In addition, the legal framework generally favors lenders' rights.
Fitch found that the pool could withstand a 70.7% decline in value (based on appraised values at issuance) and an approximately 59.2% decrease in the most recent actual cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.
Fitch evaluated the sensitivity of the ratings of classes A-1 and A-2 (rated 'AAAsf' by Fitch) and found that a 20.9% decline in Fitch net cash flow (NCF) would result in a one-category downgrade. Additionally, a 44.2% decline would result in a downgrade to below investment grade. The Rating Sensitivity section in the presale report includes a detailed explanation of additional stresses and sensitivities.
Key Rating Drivers and Rating Sensitivities are further detailed in Fitch's accompanying presale report, available at 'www.fitchratings.com' or by clicking on the above link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (Sept. 21, 2012);
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'U.S. Commercial Mortgage Servicer Rating Criteria' (Feb. 18, 2011);
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria' (Dec. 8, 2012);
--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013).
Applicable Criteria and Related Research:
Counterparty Criteria for Structured Finance and Covered Bonds
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
U.S. Commercial Mortgage Servicer Rating Criteria
Global Structured Finance Rating Criteria
Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions - Effective Sept. 21, 2012 to Sept. 20, 2013