DBRS Confirms Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2016-C29

DBRS Limited (DBRS) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C29 (the Certificates) issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C29:

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

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained in line with DBRS’s expectations since issuance. As of the March 2018 remittance, all 69 loans remain in the pool, with an aggregate outstanding principal balance of approximately $799.0 million, representing a collateral reduction of approximately 1.2% since issuance. Eight loans, representing 23.9% of the pool balance, including the three largest loans in the pool, are structured with full-term interest-only (IO) payments. An additional 18 loans, representing 24.5% of the pool balance, have partial IO payments remaining. There are 30 loans, representing 30.4% of the pool balance, reporting YE2017 financials, while 65 loans, representing 95.8% of the pool, reported a YE2016 figure. Based on the most recent year-end reporting available, the pool had a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.73 times (x) and 10.0%, respectively, an improvement as compared with the WA DBRS Term DSCR and DBRS Debt Yield figures derived at issuance for the pool of 1.58x and 9.1%, respectively.

As of the March 2018 remittance, there are six loans, representing 13.7% of the pool balance, on the servicer’s watchlist and no loans in special servicing. Four of the six watchlisted loans, representing 8.0% of the pool balance, are being monitored for non-performance-related issues. The largest watchlisted loan, Reger Industrial Portfolio (Prospectus ID#4; 3.8% of the pool) is secured by seven industrial properties, all located in South Carolina. The loan was added to the servicer’s watchlist in June 2017 after Westinghouse Electric Co. (Westinghouse), which occupies 100% of the net rentable area at the 375 Metropolitan property (27.9% of the allocated loan balance), declared bankruptcy in March 2017. In March 2018, the bankruptcy court approved the sale of the company to Brookfield Properties. The status of the subject lease is unknown, and DBRS will continue to monitor the situation closely. For the purposes of this review, a stressed cash flow scenario was applied to increase the probability of default for the loan in DBRS’s analysis.

At issuance, DBRS assigned an investment-grade shadow rating to one loan, Penn Square Mall (Prospectus ID#3; 5.8% of the pool balance). The investment-grade shadow rating was based on the low leverage and low loan-to-value (LTV) of 47.0% for the whole loan, the strong sponsor in the Simon Property Group and the strong sales for the property. However, it is noteworthy that since issuance, in-line sales have precipitously declined and in-place property cash flows have fallen slightly as well. It is also noteworthy that the overall effect of the shadow rating for pool levels is minimal, generally a factor of the low LTV, the $103.5 million B note and the high in-place whole loan DSCR of 2.61x at YE2017. Given all of these factors, DBRS has confirmed the shadow rating with this review but will monitor sales and cash flow trends closely, noting that the recent declines are likely partially due to a flooding incident at the mall in the summer of 2017. A DBRS analyst visited the property in mid-April 2018 and confirmed all repairs have been completed, and all affected tenants are open, with the exception of Gap, which had signage posted to indicate a renovation was underway for the suite. Traffic was healthy, and the mall showed well during the DBRS visit.

Classes X-A, X-B, X-D, X-E, X-G and X-F are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated reference tranche 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.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#2 – 300 Four Falls
-- Prospectus ID#3 – Penn Square Mall
-- Prospectus ID#4 – Reger Industrial Portfolio
-- Prospectus ID#6 – Sheraton Harborside Portsmouth

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire commercial mortgage-backed securities universe, as well as deal and loan-level commentary for all DBRS-rated transactions.

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.

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 under Related Documents or by contacting us at info@dbrs.com.

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.