DBRS Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2014-LC18

DBRS, Inc. (DBRS) confirmed the ratings of all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC18 (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2014-LC18. All classes were confirmed with Stable trends 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 B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

The Class PEX certificates are exchangeable with the Class A-S, Class B and Class C certificates (and vice versa).

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

This transaction closed in December 2014 with 99 loans secured by 117 commercial properties. As of the November 2017 remittance, all 99 loans remained in the pool, with a collateral reduction of 2.6% since issuance as the result of scheduled amortization. At issuance, 44 loans representing 57.0% of the transaction balance had full or partial interest-only (IO) periods remaining. As of the November 2017 remittance, 21 loans (35.1% of the pool) had remaining IO periods, with 14 of those loans (14.3% of the pool) structured with a full IO term. There have been no loans defeased since issuance.

The transaction benefits from healthy overall net cash flow (NCF) growth since issuance, with loans representing 94.7% of the pool reporting year-end (YE) 2016 financials and a weighted-average (WA) NCF growth of 13.7% over the DBRS NCF figures derived at issuance. Cash flow growth has been even stronger for the largest 15 loans, which, as of the most recent YE periods reported for each, showed a WA NCF growth of 19.4% over the DBRS NCF figures. For the loans reporting YE2016 financials, the WA debt service coverage ratio (DSCR) was 1.81 times (x), with the Top 15 loans (46.4% of the pool) reporting a WA DSCR of 2.01x and a WA debt yield of 11.8%, based on the most recent YE figures reported. Comparatively, the WA DBRS Term DSCR and DBRS Debt Yield at issuance for the pool as a whole were 1.68x and 9.8%, respectively.

As of the November 2017 remittance, there was one loan in special servicing (Prospectus ID #40, Gardens on Whispering Pines), representing 0.9% of the pool balance. There are also 11 loans (8.9% of the pool) on the servicer’s watchlist. The majority of the watchlisted loans are being monitored for upcoming rollover or property condition items, with the remainder showing cash flow declines. DBRS applied a stressed scenario in the analysis where merited for those loans showing increased risk since issuance.

The specially serviced loan is secured by a multifamily property in the tertiary community of Albany, Georgia, and was previously on the servicer’s watchlist for a low DSCR of 1.02x at YE2016. The loan transferred to special servicing in June 2017 for imminent default, which the special servicer reports is the result of a dispute within the ownership structure. The special servicer is negotiating with the sponsor on workout options, and as of the November 2017 remittance, the loan was due for the July 2017 payment and all payments due thereafter. An updated appraisal has not been finalized, but DBRS expects a value decline from the $13.5 million value determined at issuance and as such has applied a stressed scenario in the analysis for this loan. For additional information on this loan, please see the DBRS Loan Commentary on the DBRS Viewpoint platform.

Classes X-A, X-B, X-E, X-F and X-G are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche and may be adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS has provided updated loan-level commentary and analysis for larger and/or pivotal watchlisted loans and specially serviced loan in the transaction, as well as the Top 15 loans, in the DBRS Viewpoint platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS Viewpoint at viewpoint.dbrs.com.

The ratings assigned to Classes B, C, E and PEX materially deviate from the higher ratings 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 have not yet been demonstrated.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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