DBRS Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2016-C32

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C32 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C32 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class C at AA (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which has remained generally in line with DBRS’s expectations since issuance. The collateral consists of 56 fixed-rate loans secured by 76 commercial and multifamily properties. As of the October 2018 remittance, all loans remain in the pool with an aggregate principal balance of $897.4 million, representing a collateral reduction of 1.1% since issuance. At issuance, the transaction had a DBRS Term Debt Service Coverage Ratio (DSCR) and DBRS Debt Yield of 1.93 times (x) and 9.7%, respectively. Fifty-two loans (94.2% of the pool) have reported financials since issuance, including a YE2017 DSCR and Debt Yield of 1.92x and 9.8%, respectively. Based on the most recent financial reporting provided, 14 loans in the top 15, representing 61.5% of the pool balance, are reporting a healthy weighted-average (WA) in-place DSCR of 2.10x, reflective of 6.5% net cash flow growth over the DBRS issuance WA DSCR figure of 1.96x.

The pool is concentrated by property type, as 24 loans (45.8% of the pool) are secured by retail properties. However, based on the most recent financial reporting provided, these loans are reporting stable performance metrics with a WA DSCR and Debt Yield of 1.85x and 9.9%, respectively. The pool is also concentrated by loan size, as the top ten and top 15 loans represent 50.4% and 64.1% of the pool, respectively.

Four loans, representing 6.8% of the pool balance, are on the servicer’s watchlist. Two of these loans (4.9% of the pool) are flagged for outstanding deferred maintenance items, and the remaining two loans (1.9% of the pool) are being monitored for performance-related issues. Southeast Retail Portfolio (Prospectus ID#27; 1.1% of the pool) is secured by three retail properties located in South Carolina, Georgia and Virginia, and the loan was added to the watchlist due to the bankruptcy announcement for Southeastern Grocers, affecting two of the three portfolio properties. In March 2018, Southeastern Grocers (parent company of Winn Dixie and BI-LO) filed for Chapter 11 bankruptcy protection and announced that it would be closing 94 of its underperforming stores. Although the subject has BI-LO stores at two of the portfolio properties, neither of these locations is currently on the closure list. For further information on this loan and the pivotal watchlist loans in the pool, please see the loan commentary in the DBRS Viewpoint platform.

At issuance, DBRS shadow-rated two loans, Hilton Hawaiian Village (Prospectus ID#1; 7.0% of the pool balance) and Potomac Mills (Prospectus ID#5; 5.8% of current pool balance), investment grade, supported by the loans’ strong credit metrics, strong sponsorship strength and historically stable collateral performance. With this review, DBRS confirms that the characteristics of these loans remain consistent with the investment-grade shadow rating.

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:

-- Prospectus ID#1 – Hilton Hawaiian Village (7.0% of pool)
-- Prospectus ID#3 – Wolfchase Galleria (5.9% of pool)
-- Prospectus ID#5 – Potomac Mills (5.8% of pool)
-- Prospectus ID#27 – Southeast Retail Portfolio (1.1% of pool)
-- Prospectus ID#32 – Whisper Creek (0.9% of 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 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 North American CMBS Surveillance Methodology, which can be found on dbrs.com under Methodologies & Criteria. 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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