DBRS Changes Trends on Two Classes of WFRBS Commercial Mortgage Trust 2014-C20 to Negative

DBRS Limited (DBRS) changed the trends on Commercial Mortgage Pass-Through Certificates, Series 2014-C20, Class F and Class X-C issued by WFRBS Commercial Mortgage Trust 2014-C20 (the Trust) to Negative from Stable. In addition, DBRS confirmed the ratings on all classes of the Trust as follows:

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

Except for Classes F and X-C, all trends are Stable.

The trend change on Classes F and X-C reflects the increased risk to the pool surrounding Woodbridge Center (Prospectus ID#1; 11.3% of the pool), Sugar Creek I and II (Prospectus ID#4; 5.6% of the pool) and Brunswick Square (Prospectus ID#6; 3.9% of the pool). While there is credit risk surrounding the loans noted, the rating confirmations reflect the overall stability of the transaction.

At issuance, the transaction consisted of 98 fixed-rate loans secured by 142 commercial properties with an original trust balance of $1.3 billion. Per the January 2019 remittance, 92 loans remain in the pool with a current balance of $1.1 billion, representing a collateral reduction of 10.4% due to scheduled loan amortization and the repayment of six loans. Per the January 2019 remittance, approximately 98.9% of the pool (excluding defeased loans) reported YE2017 financials and the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.64 times (x) and 11.2%, respectively. At issuance, the WA DBRS Term DSCR and debt yield for the remaining loans in the pool were 1.53x and 9.7%, respectively.

According to the January 2019 remittance, the largest 15 loans (59.2% of the pool) reported a WA DSCR and debt yield of 1.54x and 10.1%, respectively, reflective of net cash flow (NCF) growth of 9.9% from the DBRS NCF figures derived at issuance. Five loans (2.2% of the pool) are fully defeased, and three loans in the largest 15 (19.5% of the pool) were analyzed with Strong sponsor strength.

According to the January 2019 remittance, there are 16 loans (10.3% of the pool) on the servicer’s watchlist. Seven loans (5.7% of the pool) were flagged for declining cash flow performance while three loans (2.5% of the pool) were flagged for deferred maintenance items and flood damage. However, the watchlisted loans reported a WA YE2017 DSCR and debt yield of 1.32x and 9.2%, respectively. The largest watchlisted loan – Residence Inn Aventura (Prospectus ID#8; 3.2% of the current pool) — has an upcoming maturity date in April 2019 and is expected to be fully repaid.

DBRS added two loans — Sugar Creek I and II and Brunswick Square — to the DBRS Hotlist as part of its review and applied stressed cash flows to both loans for the subject review. The Sugar Creek I and II loan is secured by two office buildings in Sugar Land, Texas, and the largest three tenants (collectively, 60.1% of the net rentable area (NRA)) have lease expiries prior to February 2020. DBRS has requested an update on the leasing status of the tenants; however, two of these tenants have leasing reserves in place totalling $3.0 million. The loan outlook is negative given the high rollover risk in the short term and the unfavourable office market conditions in the Houston metropolitan statistical area. The Brunswick Square loan is secured by a regional mall in New Brunswick, New Jersey, that is anchored by non-collateral tenants JCPenney and Macy’s. DBRS believes the outlook for this mall is negative due to the poor anchor sales compared with national averages, high upcoming rollover and lower asset quality.

While not on the servicer’s watchlist, DBRS is monitoring the largest loan in the pool, Woodbridge Center, due to the collateral’s exposure to Sears (24.6% of the collateral NRA); the declining sales for in-line tenants fewer than 10,000 square feet; and its close proximity to competing super-regional malls. The loan is secured by a regional mall in Woodbridge, New Jersey, that is owned and operated by Brookfield Properties Retail Group (formerly GGP Inc.). The loan’s performance has been relatively stagnant since issuance and benefits from stable occupancy and anchor tenants on long-term leases. DBRS analyzed this loan under a stressed cash flow scenario in its analysis for this review.

Rockwell – ARINC HQ (Prospectus ID#5; 4.3% of the pool) was shadow-rated investment grade at issuance; however, DBRS has removed the shadow rating with this review to reflect the removal of the investment-grade shadow rating of ARINC’s parent company, Rockwell Collins, upon its acquisition by United Technologies Corporation.

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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#1 – Woodbridge Center (11.3% of the pool)
-- Prospectus ID#4 – Sugar Creek I and II (5.6% of the pool; DBRS Hotlist)
-- Prospectus ID#5 – Rockwell – ARINC HQ (4.3% of the pool)
-- Prospectus ID#6 – Brunswick Square (3.9% of the pool; DBRS Hotlist)
-- Prospectus ID#36 – Parkway Corporate Center (0.8% of the pool)

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Notes:
All figures are in U.S dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology, which can be found on www.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, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

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

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