DBRS Assigns Provisional Ratings to Morgan Stanley Capital I Trust 2015-MS1

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-MS1 (the Certificates) to be issued by Morgan Stanley Capital I Trust 2015-MS1. The trends are Stable.

-- 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 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 (sf)
-- Class F at B (sf)

Classes X-B, D, E and F will be privately placed.

The X-A and X-B 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 certificate’s 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 the Class PST certificates. Class PST certificates may be exchanged for the full certificate balance of the Class A-S, Class B and Class C certificates.

The collateral consists of 54 fixed-rate loans secured by 59 commercial and multifamily properties, comprising a total transaction balance of $885,426,724. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the loan term and its liquidity at maturity. The DBRS sample included 34 of the 59 loans in the pool, representing 85.7% of the pool by loan balance. The DBRS average sample net cash flow adjustment for the pool was 4.8%. DBRS identified ten loans, representing 30.7% of the pool, that have sponsorship associated with a prior discounted payoff, loan default, voluntary bankruptcy filing, limited net worth and/or liquidity, a historical negative credit event and/or inadequate commercial real estate experience. DBRS increased the probability of default (POD) for loans with identified sponsorship concerns. Overall, the pool exhibits a relatively strong DBRS weighted-average (WA) term debt service coverage ratio (DSCR) and debt yield of 1.75 times (x) and 8.7%, respectively, based on the whole loan balances, which indicates moderate default risk.

There are only six loans, representing 6.1% of the pool, leased to single tenants. Loans secured by properties occupied by single tenants have been found to have higher losses in the event of default. Only five loans, representing 8.7% of the pool, are secured by hotels, which have the highest cash flow volatility of all major property types. Many recent conduit transactions have had hotel concentrations in excess of 15.0% of the pool. Additionally, nine loans, representing 31.6% of the pool, are located in urban markets, which benefit from consistent demand even in times of stress. Three loans in the top, 32 Old Slip Fee, Alderwood Mall and 841-853 Broadway, represent 18.1% of the pool, were shadow rated AAA by DBRS.

The transaction has a high concentration of loans with elevated refinance risk. Twenty-six loans, representing 53.7% of the pool, have DBRS Refinance (Refi) DSCRs less than 1.00x. Sixteen of these loans, representing 42.6% of the pool, have DBRS Refi DSCRs less than 0.90x; however, the DBRS Refi DSCRs for these loans are based on a WA stressed refinance constant of 9.86%, which implies an interest rate of 9.30%, amortizing on a 30-year schedule. This represents a significant stress of 5.2% over the WA interest rate of the loans in the pool. There are 34 loans, representing 74.7% of the pool, that are IO for a portion of or full loan terms, including 12 of the top 15 loans. DBRS models POD based on the more constraining of the DBRS Term DSCR and the DBRS Refi DSCR, and loans that lack amortization are treated more punitively.

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 North American CMBS Rating Methodology, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form-15E and does not require due diligence services in its North American CMBS Methodology, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.