DBRS Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2017-C33

DBRS, Inc. (DBRS) confirmed the ratings of all classes of Commercial Pass-Through Certificates, Series 2017-C33 (the Certificates) issued by Morgan Stanley Bank of America Merrill Lynch Trust 2017-C33 as follows:

-- 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-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (low) (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, with trends generally in line with DBRS’s expectations at issuance. This transaction closed in May 2017 with a trust balance of $702.6 million, composed of 43 loans secured by 70 commercial and multifamily properties. One year out, all loans remain in the pool, with collateral reduction of 0.46% as a result of scheduled amortization. While the pool is somewhat concentrated by balance, with the top 15 loans representing 67.6% of the pool balance, the loans are generally considered low leverage, with a weighted average (WA) DBRS Debt Yield and WA DBRS Exit Debt Yield for the pool of 9.9% and 11.3%, respectively, both of which are considered strong. The term default risk is also considered low, with a strong WA DBRS Term debt-service coverage ratio (DSCR) of 1.64x and a healthy WA DBRS Refinance DSCR of 1.15x.

Although financial reporting can be limited for a recently closed transaction, the servicer’s reporting files do show in-place figures for almost 90.0% of the pool by balance. According to the the Q3 2017 financials received for 17 loans representing 41.7% of the pool, those loans showed a WA in-place DSCR of 1.78x, with WA net cash flow (NCF) growth over the DBRS NCF figures at issuance of 9.7%. The 20 loans representing 48.1% of the pool that reported YE2017 financials showed a WA in-place DSCR of 1.92x, with a WA NCF growth of 11.3% over the DBRS NCF figures.

As of the April 2018 reporting, there were two relatively small loans on the servicer’s watchlist in Prospectus ID#20, Canyon Creek Shopping Center (1.8% of the pool balance) and Prospectus ID#36, Trolley Industrial. In DBRS’s opinion, there are no significant concerns for either loan at this point. There are, however, two loans identified by DBRS as noteworthy loans for the transaction, including one loan in the top 15, that should be on the servicer’s watchlist. These two loans are Prospectus ID#12, Ralph’s Food Warehouse Portfolio (2.4% of the pool balance) and Prospectus ID#29, Tops Portfolio (1.1% of the pool balance).

The Ralph’s Food Warehouse Portfolio loan is secured by a portfolio of nine grocery-anchored properties and one office property located across eastern Puerto Rico in an area of the island that was particularly affected by Hurricane Maria’s wrath in September 2017. The trust loan represents a portion of a pari passu whole loan, with the other piece placed in the BANK 2017-BNK4 transaction, which is not rated by DBRS. The master servicer for that transaction has placed that piece on the watchlist, noting the property damage across the portfolio as a result of the hurricane activity. DBRS has requested an update from servicer for the subject trust for details on the extent of the damage, costs to repair and operational status of the properties. Watchlist comments for the other loan piece indicate that all properties were operational as of January 2018, with the servicer’s insurance team working with the borrower to process claims.

The Tops Portfolio loan is secured by a portfolio of three grocery-anchored community shopping centers, all located within 40 miles of the Buffalo, New York, central business district. The centers are all anchored by a Tops Friendly Markets (Tops) grocery store. Tops filed for bankruptcy earlier this year, noting that all stores were expected to remain open for business as the company restructures. According to the documents received at issuance, the bankruptcy filing should have triggered a cash flow sweep for the loan. DBRS has requested confirmation from the servicer that the sweep is in place and has asked for clarification as to why the loan is not on the servicer’s watchlist for a major tenant bankruptcy. The trust loan represents a pari passu portion of a $19.5 million whole loan; based on a search on the DBRS Viewpoint platform, it does not appear that the remaining debt was placed in a commercial mortgage-backed security (CMBS) transaction.

Classes X-A, X-B and X-D are interest-only (IO) Certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation 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:

-- Ralph’s Food Warehouse Portfolio (Prospectus ID#12; 2.4% of the pool balance)
-- Tops Portfolio (Prospectus ID#29; 1.1% of the pool balance)

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 CMBS 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.

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.

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