DBRS Morningstar Maintains the Under Review with Negative Implications Status for Three Classes of MCAP CMBS Issuer Corporation, Series 2014-1

DBRS Limited (DBRS Morningstar) maintained the Under Review with Negative Implications status for three ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by MCAP CMBS Issuer Corporation, Series 2014-1 as follows::

-- Class E at BBB (low) (sf), Under Review with Negative Implications
-- Class F at BB (sf), Under Review with Negative Implications
-- Class G at B (sf), Under Review with Negative Implications

These ratings do not carry a trend.

These rating actions reflect ongoing concerns surrounding the resolution for the specially serviced loan, 1121 Centre Street NW (Prospectus ID#7, 35.7% of the pool), which is secured by an office property in Calgary. In December 2019, the loan sponsor, Strategic Group LLC, submitted an application filing under Canada’s Companies’ Creditors Arrangement Act (CCAA), which affected the subject property and 49 others within the sponsor’s 171-property portfolio.

The subject property, which also secures a subordinate B note in the amount of $1.0 million, held outside of the trust, has shown cash flow declines since YE2015, with the most recently reported debt service coverage ratio for YE2018 at 1.16 times (x) for the whole loan and 1.15x for the A note. The occupancy declines driven by soft market conditions in recent years were the source of cash flow declines since issuance for both the subject and several other properties owned by the sponsor and backing CMBS and other loans included in the CCAA filing. The subject’s relatively high occupancy rate and above breakeven cash flow do suggest prospects for resolution could be rosier than others; however, the servicer has expressed tentative optimism regarding the potential sale of the property since the loan’s transfer to special servicing in January 2020. Control of the property was recently transferred from the court appointed receiver to an independent appointed receiver and the new receiver and the servicer are working to market the property for sale. For further information on this loan, please see the DBRS Viewpoint platform, for which information has been provided, below.

At issuance, the trust was composed of 32 loans, with an original trust balance of $224.0 million. As of the June 2020 remittance, five loans remained in the trust, with a remaining balance of $25.2 million, representing a collateral reduction of 88.7% since issuance because of loan repayment and scheduled loan amortization. Outside of the 1121 Centre Street NW loan, the remaining loans in the pool are performing as expected, with healthy occupancy rates and strong cash flow growth since issuance. Although the uncertainty amid the Coronavirus Disease (COVID-19) pandemic suggests increased risks in general for commercial real estate throughout Canada, the remaining collateral properties are generally stable, with sponsors generally incentivized to fund any short- to medium-term shortfalls out of pocket as tenants may need relief or property cash flows are otherwise disrupted. In addition, of the four remaining non-specially serviced loans, three have some form of meaningful recourse, representing 53.4% of the pool balance.

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.

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#7 – 1121 Centre Street NW (35.7% 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.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the North American CMBS Surveillance Methodology (March 6, 2020), 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.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

These ratings are Under Review with Negative Implications. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period.

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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