DBRS Morningstar Upgrades One Class, Confirms Remaining Classes of ReadyCap Commercial Mortgage Trust 2014-1

DBRS, Inc. (DBRS Morningstar) upgraded one class of ReadyCap Commercial Mortgage Trust 2014-1 Commercial Mortgage Pass-Through Certificates issued by ReadyCap Commercial Mortgage Trust 2014-1 as follows:

-- Class D to AAA (sf) from AA (sf)

DBRS Morningstar also confirmed the remaining classes as follows:

-- Class C at AAA (sf)
-- Class E at A (high) (sf)
-- Class F at BBB (low) (sf)

All trends are Stable.

The rating upgrade on Class D reflects improved credit support as a result of collateral reduction of 81.6% since issuance with 14 of the original 71 loans remaining in the pool as of the February 2020 remittance. The overall performance trends for the remaining loans in the pool are stable, supporting the rating confirmations for Classes C, E, and F.

According to the February 2020 remittance, three loans, representing 22.2% of the pool balance, are on the servicer’s watchlist. The largest loan, 7200 Hull Street Road (Prospectus ID#43; 17.0% of the pool), is on the watchlist because of a decline in occupancy. The loan is secured by a retail property in Richmond, Virginia. The YE2018 financials reported an occupancy decline to approximately 61.0%, resulting in the debt service coverage ratio (DSCR) decreasing to 0.90 times (x). The probability of default significantly increased for this loan to inflate the expected loss figure in the analysis for this review.

The Park Street loan (Prospectus ID#53; 1.6% of the pool) is on the watchlist for delinquency because the loan is over 60 days delinquent and has failed to provide updated reporting. DBRS Morningstar requested an update on the status of the extended delinquency and the servicer’s response is currently pending.

One loan, 3629-3639 Walton Way Extension (Prospectus ID#28; 3.5% of the pool), transferred to special servicing in June 2019. Full details about the transfer have not been provided but, based on DBRS Morningstar research, the transfer is likely linked to the largest tenant, Gold’s Gym (75.8% of net rentable area), which vacated in May 2019 ahead of its May 2021 lease expiration. The loan is current and the servicer expects to resolve this loan by June 2020 via a loan modification.

Loans representing 92.3% of the pool reported YE2018 financials with a weighted-average (WA) DSCR and debt yield of 1.98x and 17.4%, respectively, representing a WA net cash flow (NCF) growth of 39.1% over the DBRS Morningstar net cash flows 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.

DBRS Morningstar materially deviated from its principal methodology when determining the ratings assigned to Classes E and F as the quantitative results suggest a higher rating. DBRS Morningstar considers a material deviation from a methodology to exist when there may be a substantial likelihood that a reasonable investor or other user of the credit ratings would consider the material deviation to be a significant factor in evaluating the ratings. The material deviations are warranted given the uncertain loan-level event risk associated with the loans on the servicer’s watchlist and in special servicing.

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

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

-- Prospectus ID#43 – 7200 Hull Street Road (17.0% of the pool)
-- Prospectus ID#28 – 3629-3639 Walton Way Extension (3.5% of the pool)
-- Prospectus ID#53 – Park Street (1.6% 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 CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

DBRS Morningstar notes that the above press release was amended on April 23 2020, to clarify the material deviation to Classes E and F. The change was minor and would not impact the understanding of the reader.

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.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 www.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.

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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