DBRS Downgrades Rating on Wachovia Bank Commercial Mortgage Trust, Series 2004-C15

DBRS Limited (DBRS) downgraded its rating on the Commercial Mortgage Pass-Through Certificates, Series 2004-C15, Class F (Class F) issued by Wachovia Bank Commercial Mortgage Trust, Series 2004-C15 to BBB (sf) from A (high) (sf). The trend is Stable. In addition, an Interest in Arrears designation was added to Class F, as the class incurred an interest shortfall with the June 2019 remittance.

The rating downgrade reflects DBRS’s interest shortfall tolerance for the remaining rated bond, Class F, which has an outstanding principal balance of $2.5 million as of the June 2019 remittance. In general, where timely interest is expected without a deferred interest concept, DBRS’s tolerance for missed interest payments is one to two remittance periods at the A (sf) rating category and three to four remittance periods at the BBB (sf) rating category. Despite the significant credit enhancement of 86.2% for Class F, there are challenges and uncertainty surrounding the timing of the interest shortfall repayment and the ultimate disposition of the largest loan remaining in the transaction, 4 Sylvan Way (Prospectus ID#13; 91.5% of the pool), prompting the rating downgrade to BBB (sf).

As of the June 2019 remittance, the transaction has experienced collateral reduction of 98.6% since issuance with two of the original 87 loans remaining in the pool. In the past year, two loans, which had been secured by defeasance collateral, matured in April 2019 and May 2019, respectively, contributing $8.4 million in total principal repayment.

The 4 Sylvan Way loan transferred to special servicing for imminent maturity default in August 2014 and has remained real estate owned after the servicer completed a deed in lieu and took title in May 2015. The office property is 100.0% occupied by a single tenant, T-Mobile USA, Inc., which is paying below market rent with a lease that is scheduled to expire in May 2027. The lease renewal in May 2017 included a $3.8 million tenant improvement (TI) package that was scheduled for completion in the near term; however, as of June 2019, the servicer confirmed that the TI work is ongoing with a remaining balance of $2.1 million. According to the servicer, the property has been under contract for sale three times with purchase offers between $15.00 million to $15.75 million; however, no purchase offers materialized as the buyers were unable to complete the due diligence process.

The remaining loan, CVS – Cedar Park, TX (Prospectus ID#69; 8.5% of the pool), is secured by a free-standing retail property that is 100.0% leased to CVS Pharmacy (CVS). The tenant vacated the property in 2011 and will continue to honor its lease obligations until October 2023. The loan is fully amortizing with approximately five years remaining. CVS is an investment-grade entity and is expected to continue to pay throughout the term of its lease.

The rating assigned to Class F is different than that implied by the analysis within the DBRS North American Direct Sizing Hurdles as the structural features of the transaction outweigh the quantitative output, given the uncertainty surrounding the timing of the interest shortfall repayment and DBRS’s interest shortfall tolerance for the remaining rated bond, Class F.

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 remaining loans in the transaction:

-- Prospectus ID#13 – 4 Sylvan Way (91.5% of the pool)
-- Prospectus ID#69 – CVS – Cedar Park, TX (8.5% 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 most outstanding commercial mortgage-backed security transactions (including non-DBRS rated), as well as loan-level and transaction-level commentary for most DBRS-rated and -monitored transactions.

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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