DBRS Changes Trends to Positive from Stable on Two Classes of A10 Term Asset Financing 2014-1, LLC

DBRS, Inc. (DBRS) has today confirmed the following Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by A10 Term Asset Financing 2014-1, LLC:

-- Class A-2 at AAA (sf)
-- Class B at A (sf)
-- Class C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

All trends are Stable with the exception of Classes B and C, which have had their trends changed to Positive from Stable.

Additionally, the rating assigned to Class A-1 has been discontinued as the class has been repaid in full.

The rating confirmations and trend changes reflect the overall stable performance of the pool and the increased credit support to the bonds as a result of successful loan repayment. The transaction consists of seven loans secured by nine traditional commercial real estate assets, including office, retail and industrial properties. According to the March 2017 remittance, there has been collateral reduction of 66.1% since issuance, as 12 loans have been repaid in full and eight properties out of an original 11-property portfolio loan have been re-leased, with proceeds paying down the portfolio loan. The remaining loans benefit from low leverage on a per-unit basis, with the weighted-average debt yield based on the most recently reported net operating income and outstanding trust balance at 9.8%, which is moderately stable given that the pool consists of stabilizing assets.

Most loans were originally structured with three-year terms and include built-in extensions and future funding facilities meant to aid in property stabilization, both of which are at the lender’s sole discretion. The reserve account has a current balance of $4.2 million against total potential future funding obligations of $7.4 million. According to the most recent reporting, the collateral assets have stable debt yields; however, the majority of the properties continue to perform below their respective stabilization plans.

The transaction is concentrated, as the largest loan in the transaction represents 28.9% of the current pool balance. This loan, Norris Technology Center, is secured by a two-building flex-office property in San Ramon, California. The loan was originally structured with a $5.3 million future funding component, which was to be utilized for renovating the subject into more traditional office space, along with proceeds for future leasing activity. To date, $3.4 million of the reserve has been released as all capital projects have been completed and the borrower successfully signed new or renewal leases with three tenants in 2016. Adept Technology (25.3% of the net rentable area (NRA)) and Donor Network West (12.2% of the NRA) signed new ten- and 12-year leases, respectively, with each tenant receiving $45.00 per square foot in tenant improvements. The collateral is currently 74.4% occupied; however, it will fall to approximately 50.0% when Giga-tronics vacates at its lease expiration at month-end April 2017. According to the servicer, the borrower is discussing either possibly expanding with Adept Technology or completing a lease with a new tenant. The current reserve balance of $1.9 million equates to approximately $12.00 psf of the total potential vacant space.

The ratings assigned by DBRS contemplate timely payments of distributable interest and, in the case of the offered notes other than the Class A-2 Senior Fixed Rate Notes, ultimate recovery of deferred collateralized note interest amounts (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law). The transaction is a standard sequential-pay waterfall.

The rating assigned to Class B materially deviates from the higher rating implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given the sustainability of loan performance trends has not been demonstrated.

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 principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.