DBRS Assigns Provisional Ratings to GS Mortgage Securities Trust 2014-GC26

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-GC26 (the Certificates), to be issued by GS Mortgage Securities Trust 2014-GC26. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class PEZ at A (sf)
-- Class C at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)

Classes X-C, X-D, D, E and F have been privately placed pursuant to Rule 144A.

The Class X-A, Class X-B, Class X-C and Class X-D 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 PEZ certificates. Class PEZ 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 92 fixed-rate loans secured by 133 commercial properties, comprising a total transaction balance of $1,255,180,419. The DBRS sample included 40 loans, representing 66.8% of the pool. Five loans, representing 15.6% of the pool, were modeled with Above Average property quality, a measure indicating a higher likelihood of attracting and retaining new or existing tenants, resulting in a more stable performance. Only seven loans, representing 7.0% of the pool, are secured by hotels, which have the highest cash flow volatility of all major property types. Overall, the pool is relatively diverse based on loan size, with a concentration profile equivalent to that of a pool of 38 equal-sized loans. Increased pool diversity helps to insulate the higher-rated classes from event risk.

The transaction has a high concentration of 49 loans, representing 60.6% of the pool, with DBRS Refi debt service coverage ratios (DSCRs) below 1.00x. This is well above levels seen in other transactions recently rated by DBRS, and well above transactions from 2013 and prior years. Although this indicates substantial refinance risk, the transaction’s DBRS Refi DSCRs are based on a weighted-average stressed refinance constant of 9.80%, which implies an interest rate of 9.17%, amortizing on a 30-year schedule. This represents a significant stress of 4.6% over the weighted-average contractual interest rate of the loans in the pool. In addition, the combined partial IO and full-term IO concentration amounts to 70.6% of the total pool. There are 11 loans that are IO for the full term, representing 17.1% of the pool, including five of the 15 largest loans in the pool. This in turn results in a relatively low level of total pool amortization during the loan term of -13.2%. Furthermore, DBRS determines the probability of default based on the lower of term or refinance DSCR, and loans that lack amortization are treated more punitively. Ten loans, representing 14.5% of the pool, are also secured by properties that are leased either fully or primarily to a single tenant. Single-tenant properties have been found to have higher loss severities in the event of default.

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 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.

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