DBRS Assigns Provisional Ratings to Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C20 (the Certificates), to be issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20:

-- 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 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 X-F at AAA (sf)
-- Class B at AA (low) (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 D, E, F, X-B, X-C, X-D, X-E and X-F will be privately placed.

Classes X-A, X-B, X-C, X-D, X-E and X-F 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 88 fixed-rate loans secured by 102 commercial properties comprising a total transaction balance of $1,147,884,539. 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, five loans, representing 8.7% of the pool, had a DBRS Term Debt Service Coverage Ratio (DSCR) below 1.15x, 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 47.7% of the pool having refinance DSCRs below 1.00x.

Eighteen loans, representing 20.6% of the pool, are secured by hotels, including four in the top 15. Hotel properties have higher cash flow volatility than traditional property types, as their income is derived from daily contracts rather than multi-year leases, and their expenses, which are often mostly fixed, are quite high as a percent of revenue. These two factors cause revenue to fall swiftly during a downturn and cash flow to fall even faster due to the high operating leverage. The transaction has a high concentration of loans suffering from elevated refinance risk, with 47.7% of the pool having a DBRS Refi DSCR less than 1.00x. However, the DBRS Refi DSCR for these loans are based on a weighted-average (WA) stressed refinance constant of 9.8%, which implies an interest rate of 9.3%, amortizing on a 30-year schedule. This represents a significant stress of 4.5% over the WA interest rate of the loans in the pool.

The DBRS sample included 37 of the 88 loans in the pool, representing 67.1% of the pool by loan balance. Three of the sampled loans, including Linc LIC, One & Only Ocean Club and Hampton Inn & Suites DuPont, representing 7.58% of the pool, were modeled with Excellent and Above Average property quality, respectively. None of the loans were given Below Average property quality. DBRS considers the pool to be relatively diverse by loan size, with a concentration profile equivalent to a pool of 36 equal-sized loans, with the top ten loans representing only 40.5% of the overall pool balance.

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.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.