DBRS Confirms Ratings on Morgan Stanley Bank of America Merrill Lynch Trust, Series 2014-C14

DBRS Limited (DBRS) has today confirmed the ratings on the Commercial Mortgage Pass-Through Certificates issued by Morgan Stanley Bank of America Merrill Lynch Trust, Series 2014-C14 as follows:

-- 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-C at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (sf)
-- Class G at B (high) (sf)

All trends are Stable.

The rating confirmations reflect the stable performance of the transaction, which remains in line with DBRS expectations at issuance. The collateral consists of 58-fixed-rate loans secured by 75 commercial and multifamily properties. Six loans, representing 23.3% of the current pool balance, are IO for the full loan term. In addition, 24 loans had partial IO periods ranging from 12 to 60 months at issuance; however, four loans have become amortizing loans and the remaining 20 loans, representing 34.2% of the current pool balance, are still IO. As of the October 2015 remittance, the pool’s balance was approximately $1,464.1 million, representing a collateral reduction of 1.0% since issuance. Loans representing 99.5% of the current pool balance have year-end (YE) 2014 financial reporting available with the weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield were 1.7 times (x) and 10.7%, respectively. This is generally in line with DBRS underwritten WA DSCR and WA debt yield of 1.63x and 9.8%, respectively.

DBRS shadow-rates two loans, JW Marriott and Fairfield Inn & Suites (representing 5.1% of the current pool balance) and Courtyard Isla Verde Beach Resort (representing 1.8% of the current pool balance), as investment grade. DBRS has today confirmed that the performance of the loans remain consistent with investment-grade loan characteristics.

As of the October 2015 remittance, there are no delinquent or specially serviced loans; however, three of the smaller loans, totalling 1.5% of the current pool balance, are on the servicer’s watchlist. One loan was flagged for a deferred maintenance item and the other two were flagged for declining year to date performance at Q2 2015. DBRS does not view the loans to have pervasive risk that will adversely affect the performance of the pool but will continue to monitor these loans and provide updates as they become available. Two larger loans that are not on the servicer’s watchlist, but are worth noting are discussed below:

120 Wall Street (Prospectus ID#2, 9.2% of the current pool balance) is secured by the borrower’s leasehold and the ground lessor’s fee interest in a 34-story, Class B office building located in Lower Manhattan, New York. According to the YE2014 operating statement analysis report, the DSCR was 1.00x, which is a decrease from DBRS underwritten DSCR of 1.64x. This is attributed to a 21.1% decrease in effective gross income from the DBRS underwritten amount derived at issuance as a result of rent concessions that had been in effect in early 2014. The borrower has stated that all tenants are currently paying their contractual rent; therefore, the DSCR is expected to rebound in 2015. As per the June 2015 rent roll, the property was 94.9% occupied, which is slightly below YE2014 occupancy of 98.1% but above DBRS underwritten occupancy of 91.5%.

Aspen Heights (Prospectus ID# 7, 3.5% of the current pool balance) is secured by a 318-unit student housing complex in Columbia, Missouri, located approximately three miles southeast of the University of Missouri campus. City officials conducted an inspection in February 2014 and it was discovered that an apartment had failed for the second time to maintain a temperature of 65 degrees, which is in violation of the International Property Maintenance Code. As a result, the city had filed a probable cause statement for violation of city ordinance and issued an order for Aspen Heights to provide a permanent solution. It is uncertain whether legal action has taken place. DBRS has requested additional information and is awaiting a response from the servicer to determine what, if any, legal action has occurred. According to YE2014 financials, the YE2014 DSCR was 0.89x at 86% occupancy, which is a decrease from DBRS underwritten DSCR of 1.23x and 91.0% occupancy. The decrease in DSCR is the result of an increase in total operating expenses, specifically property insurance, payroll and benefits, and repairs and maintenance. DBRS has also reached out to the servicer for more insight on the expense items and is currently awaiting a response. Because of the additional risk associated with the performance of this loan, DBRS modeled the loan based on current performance and increased cash flow volatility and other inputs which increased the probability of default for this loan from its original assumptions. DBRS will continue to closely monitor for developments and will provide information as it becomes available.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The October 2015 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS at info@dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are North American CMBS Rating Methodology (June 2015) and CMBS North American Surveillance (January 2015), which can be found on our website under Methodologies.