DBRS Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C17 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17 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 X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class X-C at B (high) (sf)
-- Class F at B (sf)

The Class PST certificates are exchangeable for the Class A-S, Class B and Class C certificates (and vice versa). All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has experienced a collateral reduction of 3.6% since issuance, with 66 of the original 67 loans remaining in the pool as of the July 2018 remittance report. The majority of the remaining loans in the pool were structured with ten-year terms and will mature in 2024. Four loans, including one loan in the top 15, are fully defeased, representing 9.3% of the pool. Loans representing 81.3% of the pool reported YE2017 financials with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.71 times (x) and 10.4%, respectively. The largest 15 loans reported YE2017 financials with a WA DSCR and WA debt yield of 1.64x and 9.9%, respectively, representing a WA cash flow improvement of 10.2% over the DBRS net cash flow figures derived at issuance.

As of the July 2018 remittance, there are seven loans (including one in the top 15), representing 5.8% of the pool, that are on the servicer’s watchlist. Two loans are being monitored for deferred maintenance, while the remaining five loans are being monitored for major tenant lease expirations or occupancy related issues. In the case of two of the five loans, the respective sponsors were successful in renewing leases with major tenants and both loans should be removed from the watchlist in the near future. Additionally, sponsors for two other loans being monitored for rollover are likely to sign replacement tenants to take over any vacant space.

There is one loan to note in Arrowhead Professional Park (Prospectus ID#33, 0.9% of the pool), which is secured by a medical office building in Glendale, Arizona. The loan is being monitored because the property’s largest tenant, representing 53.8% of the net rentable area, was not expected to renew at lease expiry at the end of July 2018. A cash flow sweep has been triggered and the space is actively being marketed. For additional information on this loan, please see the loan commentary on the DBRS Viewpoint platform, for which information is provided below.

Additionally, there is one loan, representing 2.0% of the pool, in special servicing in Holiday Inn Houston Intercontinental Airport (Prospectus ID#17), which is secured by a 414-key full-service hotel located in Houston, Texas. The loan was transferred to special servicing in March 2017 due to imminent default and significant deferred maintenance. According to the servicer, the subject has property improvement plan renovations due to be completed in 2015 that remain outstanding and are putting the property in violation of the franchise agreement. In May 2017, the ten-year franchise agreement with Holiday Inn expired; however, the hotel is still listed as a Holiday Inn on its website as of August 2018. A receiver was appointed in August 2017 and as of July 2018, the property is now real-estate owned.

A DBRS analyst visited the property in May 2018 and noted the property was in generally deteriorating condition, suffering from new competition brought into the area just north of the subject and closer to the airport. DBRS assumed a loss severity approaching 42% based on the most recent as-is appraised value of $16.1 million as of May 2018 for this review but acknowledges the loss severity could go much higher given the market conditions and will closely monitor for developments through the workout. For additional information on this loan, please see the loan commentary on the DBRS Viewpoint platform, for which information is provided below.

At issuance, DBRS shadow-rated Courtyard King Kamehameha’s Kona Beach Hotel Leased Fee (Prospectus ID#6; 3.7% of pool) as investment grade. DBRS has today confirmed that performance of this loan remains consistent with investment-grade characteristics.

Classes X-A, X-B and X-C 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:

-- Prospectus ID #6 – Courtyard King Kamehameha’s Kona Beach Hotel Leased Fee
-- Prospectus ID #11 – Dixie Manor
-- Prospectus ID #15 – The Viridian Building
-- Prospectus ID #17 – Holiday Inn Houston Intercontinental
-- Prospectus ID #33 – Arrowhead Professional Park

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.

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.

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.