DBRS Morningstar Confirms Ratings on CMLS Issuer Corp., Series 2014-1
CMBSDBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by CMLS Issuer Corp., Series 2014-1 (the Trust) as follows:
-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class X at AA (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)
All trends are Stable. Previously, DBRS Morningstar maintained a Negative trend for Class G given concerns surrounding the Clearwater Suites Hotel (Prospectus ID#10) loan, which was secured by a hotel property in Fort McMurray, Alberta, and had been monitored for significant performance declines from issuance. However, that loan was fully repaid with the March 2020 remittance, and as such, DBRS Morningstar changed the trend for Class G to Stable from Negative.
The rating confirmations reflect the overall stable performance of the transaction since last review. At issuance, the transaction consisted of 37 fixed-rate loans and an original trust balance of $283.7 million. As of the March 2020 remittance, 26 loans remained in the Trust with a balance of $203.9 million, representing a collateral reduction of 28.1% caused by loan repayments and scheduled loan amortization. The pool also benefits from generally shorter amortization schedules and a lack of interest-only (IO) periods as all loans amortize for their respective terms.
Loans representing 100% of the current pool balance are reporting a YE2018 weighted-average (WA) debt service coverage ratio (DSCR) and WA debt yield of 1.64 times (x) and 12.0%, respectively.
As of the March 2020 remittance, there were three loans, representing 12.6% of the pool balance, on the servicer’s watchlist because of performance-related reasons or deferred maintenance observed at the most recent servicer’s site inspections of the collateral properties. There are no loans in special servicing.
The largest loan on the watchlist, Spring Garden Place (Prospectus ID#5, representing 6.0% of the pool), is secured by a mixed-use office building located in Halifax. The loan is on the servicer’s watchlist because of a low YE2018 DSCR of 0.41x, which remains unchanged from YE2017, compared with the Issuer’s DSCR of 1.55x at securitization. According to the servicer, the decline in performance since issuance has been attributed to rent abatement periods and fluctuating occupancy. According to the March 2020 rent roll, occupancy was reported at 68.0%, compared with 54.3% at YE2018 and 88.0% at YE2017. A notable tenant departure includes IWK Health Centre (22.1% of the net rentable area (NRA)), which vacated the subject upon its September 2018 lease expiration, while The Bank of Nova Scotia (rated AA with a Stable trend by DBRS Morningstar) reduced its footprint to 5.3% from 24.1% of the NRA in August 2019. Although the borrower has been successful in signing a few smaller tenants in Q4 2019, property occupancy remains depressed. As part of this review, a probability of default penalty was applied to increase the expected loss for this loan in the model.
DBRS Morningstar does note the transaction’s exposure to a concentration of retail properties in the pool, a factor that is particularly noteworthy given the Coronavirus Disease (COVID-19) outbreak of 2020 and the impact to retail traffic around the world as government officials, property owners and company CEOs alike, have taken measures to address the virus’s spread by ordering stores and restaurants closed. DBRS Morningstar notes that some of the retail properties securing loans in the subject transaction have tenants that are considered essential services, such as food and pharmaceutical providers, that are expected to continue to stay open and operate during the coronavirus outbreak.
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.
Class X is an IO certificate that references 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.
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Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is 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/dbrs-morningstar-provides-update-on-rating-methodologies-in-light-of-measures-to-contain-coronavirus-disease-covid-19.
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 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@dbrsmorningstar.com.
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.
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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