DBRS Confirms Ratings on CMLS Issuer Corp., Series 2014-1

DBRS Limited (DBRS) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by CMLS Issuer Corp., Series 2014-1 (the Trust):

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class X at A (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

With this review, DBRS has maintained a Negative trend for Class G due to ongoing concerns surrounding Clearwater Suites Hotel (Prospectus ID#10, 3.6% of the pool balance), which is secured by a hotel property located in Fort McMurray, Alberta. The trends on all other classes are Stable.

The rating confirmations reflect the transaction’s overall stable performance since last review. This deal closed in December 2014 with an original trust balance of $284.0 million with 37 fixed-rate loans secured by 39 commercial properties located throughout Canada. As of the July 2018 remittance, the pool had an aggregate balance of approximately $240.5 million, representing a collateral reduction of 15.2% since issuance due to loan repayments and scheduled loan amortization, with 32 loans remaining in the pool. According to the most recent year-end figures, the 32 remaining loans reported a weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.48 times (x) and 10.5%, respectively. At issuance, the WA DBRS Term DSCR and WA DBRS Debt Yield for the 32 loans currently in the pool was 1.38x and 9.13%, respectively. This figure reflects the updated net cash flow (NCF) analysis for the Clearwater Suites loan completed as part of the pari passu note’s contribution to the CCMOT 2015-3 transaction, as discussed in further detail below. Cash flow growth for the largest 15 loans, which collectively represent 83.6% of the pool, has been healthy with YE2017 figures showing WA NCF growth of 7.56% over the DBRS figures.

Pool strengths include structural elements at the loan level. There are 28 loans in the pool, representing 83.7% of the pool balance, that have some form of meaningful recourse to the sponsor. The pool also benefits from generally shorter amortization schedules and a lack of interest-only (IO) periods as all loans amortize for their respective terms. Although the Clearwater Suites loan is full recourse, the pool’s exposure to sustained economic difficulties in the Fort McMurray market over the last several years have posed a challenge. Those factors, as well as two separate instances where the collateral property was significantly damaged and needed major repairs (both covered by insurance), have contributed to sustained cash flow declines since issuance. The YE2017 DSCR was reported at 0.10x, down from the already-low 0.67x for YE2016 and the DBRS Term DSCR at issuance of 1.15x (as adjusted for the updated DBRS analysis with contribution from the other piece of this pari passu loan to the CCMOT 2015-3 transaction).

It should also be noted that the servicer reports a different DSCR of 0.21x at YE2017 for the piece contributed to the CCMOT 2015-3 transaction. The servicer’s analysis includes adjustments to the reported cash flows for management fees and capital expenditures, which are based on the Issuer’s underwritten figures. The subject loan was re-underwritten when contributed to the 2015 transaction and, as such, the DSCR figures do not match across the deals. DBRS has suggested that this be adjusted going forward so that both pieces show the same coverage ratio.

With this review, DBRS assumed a stressed cash flow scenario for the Clearwater Suites loan to significantly increase the probability of default (PD). There are positives in place in the sponsor’s recent investment in improvements for the property and the continued funding of debt-service shortfalls out of pocket. The loan is full recourse to Temple Hotels Inc., which is majority-owned by Morguard Corporation (rated BBB (low) with a Stable trend by DBRS) and, although this structural feature does provide some cushion against the increased risk since issuance, the low cash flow trends for the collateral property support the Negative trend for the lowest-rated class.

There are currently six loans, representing 23.89% of the pool, on the servicer’s watchlist. Four loans were flagged due to a low DSCR, driven by declined occupancy in each case. These loans were analyzed with a stressed cash flow scenario to increase the PD. The other loans were flagged for non-performance related issues. The six watchlisted loans reported a WA YE2017 DSCR and in-place debt yield of 1.13x and 7.8%, respectively.

Class X is an IO certificate 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:
-- Burlington Office Portfolio (Prospectus ID #3, 7.0% of the pool)
-- Clearwater Suites (Prospectus ID #10, 3.6% of the pool)
-- Europro Stratford Mixed Use (Prospectus ID #33, 1.0% of the pool)

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 Canadian 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.