DBRS Assigns Provisional Ratings to Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18

DBRS has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C18 (the Certificates), to be issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class PST at A (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

All trends are Stable.

Classes X-B, X-C, X-D, D, E and F will be privately placed pursuant to Rule 144A.

Classes X-A, X-B and X-C balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates’ position within the transaction payment waterfall when determining the appropriate rating.

Up to the full certificate balance of the Class A-S, Class B and Class C certificates may be exchanged for Class PST certificates. Class PST certificates may be exchanged for up to the full certificate balance of the Class A-S, Class B and Class C certificates.

The collateral consists of 65 fixed-rate loans secured by 100 commercial properties. The second-largest loan in the pool, 300 North LaSalle, representing 9.7% of the pool, was shadow-rated AAA by DBRS. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized Net Cash Flow and their respective actual constants, two loans, representing 2.6% of the pool, had a DBRS Term Debt Service Coverage Ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts, resulting in 58.6% of the pool having DBRS Refinance DSCRs below 1.00x.

Eleven loans, representing 11.1% of the pool, are leased to single tenants, which have higher loss severities in the Event of Default. Seven of the 11 single-tenant loans, representing 25.3% of the single-tenant concentration, are occupied by The Walgreen Company, an investment-grade-rated tenant on leases expiring well beyond loan maturity, providing for minimal term risk and, in certain instances, reduced refinance risk as well. Additionally, seven loans, representing 21.2% of the pool (including two in the top ten), are structured as IO for the full loan term. An additional 32 loans, representing 58.3% of the pool, have partial IO periods ranging from 12 to 60 months. The transaction’s scheduled amortization by maturity at -9.8% is below other recent conduit transactions.

The DBRS sample included 28 of the 66 loans in the pool, representing 74.1% of the pool by loan balance. Of the sampled loans, one loan was given Excellent property quality and one was loan was given Above Average property quality while no loans were given Below Average property quality. DBRS considers the pool to be relatively diverse based on loan size, with a concentration profile equivalent to a pool of 25 equal-sized loans.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Other Research or by contacting us at info@dbrs.com.