DBRS Finalizes Provisional Ratings on WFRBS Commercial Mortgage Trust 2014-C25

DBRS, Inc. (DBRS) has today finalized provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C25 (the Certificates) to be issued by WFRBS Commercial Mortgage Trust 2014-C21 (the Trust):

-- 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-C at AAA (sf)
-- Class X-D at AAA (sf)
-- Class X-E 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 (sf)
-- Class F at B (sf)

All trends are Stable.

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

Classes X-A, X-B, X-C, X-D and X-E 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 PEX certificates. Class PEX 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 59 fixed-rate loans secured by 73 commercial and multifamily properties. The largest loan in the pool, St. Johns Town Center, representing 11.4% of the pool, was shadow-rated AA (low) 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, there was only one loan, representing 3.3% of the total pool, with a 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 48.0% of the pool having refinance DSCRs below 1.00x. While the pool has a relatively high concentration of loans suffering from elevated refinance risk, the largest loan in the pool, St. Johns Town Center, which represents 11.4% of the pool, has a large $146.5 million B-note, which depresses whole loan credit metrics for the pool. Based on the A-note only, the DBRS Refinance DSCR for the pool is higher, at 1.11x.

The transaction has a large concentration of loans sponsored by Simon Property Group, including the two largest loans in the pool, St. Johns Town Center and Colorado Mills, which represent 22.8% of the pool. Simon Property Group is one of the largest retail owners in the world, and as of Q3 2014, the company had a market capitalization of $87 billion and owned 228 retail assets in the United States, Europe and Asia. DBRS modeled Simon Property Group as Strong, decreasing the probability of default for the loans. Additionally, four loans, representing 20.6% of the pool (including two in the top ten), are structured as IO for the full loan term. An additional 27 loans, representing 55.2% of the pool, have partial IO periods ranging from 12 to 66 months. The transaction’s scheduled amortization by maturity at -10.7% is above other recent conduit transactions.

The DBRS sample included 27 of the 59 loans in the pool, representing 73.2% of the pool by loan balance. Of the sampled loans, one loan was given Excellent property quality and three loans were given Above Average property quality, while five 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.