DBRS Assigns Provisional Ratings to Wells Fargo Commercial Mortgage Trust 2014-LC18

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC18 (the Certificates) to be issued by Wells Fargo Commercial Mortgage Securities Trust 2014-LC18. 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-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-G at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

Classes D, E, F, X-E, X-F and X-G have been privately placed.

The Class X-A, Class X-B, Class X-E, Class X-F and Class X-G 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 balances of the Class A-S, Class B and Class C certificates may be exchanged together (and if less than in full, in a proportion based on their respective initial certificate balances) for Class PEX certificates. Class PEX certificates may be exchanged for up to the full certificate balances of the Class A-S, Class B and Class C certificates (and if less than in full, in a proportion based on their respective initial certificate balances).

The collateral consists of 99 fixed-rate loans secured by 117 commercial properties, comprising a total transaction balance of $1,138,484,364. The conduit pool was analyzed to determine provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity maturity. When cut-off loan balances were measured against the DBRS Stabilized Net Cash Flow and their respective actual constants, four loans, representing 6.2% 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 34.4% of the pool having DBRS Refinance DSCRs below 1.00x.

The pool is diverse by loan size as the top ten loans represent 36.2% of the overall pool balance, with the entire pool having a concentration profile equivalent to a pool of 46 equal-sized loans. Fourteen loans, representing 13.9% of the pool (including three loans in the top 15), are structured as IO for the full loan term. An additional 31 loans, representing 43.1% of the pool, have remaining partial IO periods ranging from six months to 61 months. The transaction’s scheduled amortization by maturity at -13.0% is in line with other recent conduit transactions.

The DBRS sample included 31 of the 99 loans in the pool, representing 53.9% of the pool by loan balance. Of the sampled loans, three loans, were modeled with Above Average property quality and three loans were modeled with Below Average property quality, representing 9.2% and 1.5% of the pool, respectively. In addition, 11 loans, representing 20.7% 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 each loan representing no more than 7.5% of the total pool balance. Increased pool diversity helps to insulate the higher-rated classes from event risk.

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.