DBRS Morningstar Downgrades Three Classes of COMM 2014-LC15 Mortgage Trust

DBRS, Inc. (DBRS Morningstar) downgraded three classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC15 issued by COMM 2014-LC15 Mortgage Trust (the Trust) as follows:

-- Class E to B (sf) from BB (low) (sf)
-- Class F to B (low) (sf) from B (sf)
-- Class X-C to B (sf) from B (high) (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-M at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class PEZ at A (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)

In addition, DBRS Morningstar changed the trend on Class E to Negative from Stable. Classes F and X-C have Negative trends. All other trends are Stable.

The rating downgrades and Negative trend change reflect DBRS Morningstar’s outlook for the loans in special servicing, which collectively represent 5.0% of the pool balance and include Prospectus ID#22–McKinley Mall (1.2% of the pool balance) that is secured by a regional mall in Hamburg, New York. The Trust loan represents a pari passu portion of the $38.0 million whole loan, with the larger $28.0 million piece contributed to the COMM 2014-CCRE14 transaction, also rated by DBRS Morningstar.

The McKinley Mall loan has been in special servicing since April 2018. The mall lost all but one anchor (JCPenney) to bankruptcy closures. With the anchor departures, occupancy fell to 79.5% as of Q3 2019 compared with the YE2017 occupancy rate of 96.0%. The servicer obtained an April 2019 appraisal that showed an as-is value of $11.5 million compared with the issuance value of $56.5 million. The April 2019 value suggests a significant loss to the Trust, with a loss severity approaching 100.0% at resolution. The modeled loss for the loan of nearly $8.0 million is contained to the Class G certificates, but the decreased credit support for the Class E and F certificates supports the downgrades for those classes (and related interest-only (IO) certificate in Class X-C).

The largest loan in special servicing, Prospectus ID#14–Hilton Garden Inn Houston (2.6% of the pool), recently transferred in January 2020. The collateral property, a limited-service hotel located near Willowbrook Mall in the northwest part of the Houston metro, has historically reported relatively stable cash flows, but the most recently reported debt service coverage ratio (DSCR) as of the trailing 12 months ending September 2019 showed a coverage of 0.92 times (x), with a franchise agreement expiring in 2022. The servicer’s comments suggest the sponsor is interested in giving back title to the property and a workout strategy is still being determined. DBRS Morningstar applied a steep probability-of-default penalty to the loan in the analysis to increase the loan-level expected loss and will continue to monitor for developments.

The pool currently consists of 40 of the original 48 loans with collateral reduction of 21.5% since issuance as of the March 2020 remittance. Two loans, representing 1.1% of the current pool balance, are fully defeased. There are three loans, representing 4.9% of the pool balance, on the servicer’s watchlist, including one loan in the top 15.

Loans representing 97.9% of the pool are reporting YE2018 or YE2019 financials, with a weighted-average (WA) DSCR and WA debt yield of 1.59x and 11.1%, respectively. The largest 15 loans represent 78.9% of the current pool balance, and the majority of the loans reported partial-year 2019 financials, with a WA DSCR and debt yield of 1.61x and 9.5%, respectively, representing a WA net cash flow growth of 9.0% over the DBRS Morningstar cash flow figures derived at issuance.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A, X-B, and X-C are 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 Morningstar.

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

-- Prospectus ID#5–Akers Mill Square (7.4% of the pool)
-- Prospectus ID#13–The Dorchester at Forest Park (3.1% of the pool)
-- Prospectus ID#22–McKinley Mall (1.2% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding commercial mortgage-backed security transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-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 dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 Morningstar 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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

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