DBRS Morningstar Confirms all Classes of WFCM 2015-SG1, Removes Five Classes from UR-Neg.

DBRS Limited (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2015-SG1 issued by Wells Fargo Commercial Mortgage Trust 2015-SG1 (the Issuer) as follows:

-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at BB (low) (sf)
-- Class E at B (high) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

With this rating action, Classes D, E, F, X-E, and X-F were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. The trends on these classes are Negative. DBRS Morningstar also changed the trends on Classes B, C, and PEX to Negative from Stable. All other trends are Stable.

The Negative trends reflect the continued performance challenges for the underlying collateral, much of which has been driven by the impacts of the global Coronavirus Disease (COVID-19) pandemic. In addition to loans representing 16.7% of the pool in special servicing and 43.3% of the pool on the servicer’s watchlist as of the November 2020 remittance, DBRS Morningstar also notes the pool has a high concentration of retail and hospitality properties, representing 35.0% and 22.3% of the pool balance, respectively. These property types have been the most severely affected by the initial effects of the coronavirus pandemic and as such, those concentrations suggest increased risks for the pool, particularly at the lower rating categories, since issuance. Based on the year-end (YE) 2019 financials, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.76 times (x), compared to the YE2018 WA DSCR of 1.78x with the Issuer’s WA DSCR of 1.66x.

As of the November 2020 remittance, 69 of the original 72 loans remain in the pool, representing a collateral reduction of 9.1% since issuance. One loan, representing 0.5% of the pool is fully defeased. There are eight loans, representing 16.7% of the pool, in special servicing, including the second-largest loan in the pool, Boca Park Marketplace (Prospectus ID#2, 6.8% of the current pool balance). This loan is secured by an anchored retail property located in Las Vegas, Nevada, and was transferred to special servicing at the borrower’s request due to the impact of the coronavirus pandemic. As of the November 2020 remittance, the loan is over 90 days delinquent and a resolution strategy has not yet been determined. The property reported a healthy occupancy rate of 99.0% as of the servicer’s July 2020 site inspection, with the largest tenant in Ross Dress for Less, which represents 20.7% of the net rentable area (NRA) and is on a lease extending until January 2022. The immediate vicinity includes national tenants such as Whole Foods, Barnes & Noble, Target, Walgreens, and Kohl’s. Considering the loan’s delinquency status and uncertainty surrounding the workout plan, DBRS Morningstar analyzed this loan with an elevated probability of default (PoD) to increase the expected loss for this review.

According to the November 2020 remittance, 20 loans are on the servicer’s watchlist, representing 43.3% of the current pool balance. These loans are being monitored for various reasons, including a low DSCR or occupancy figure, deferred maintenance, and/or pandemic-related forbearance requests. The largest loan in the pool, Patrick Henry Mall (Prospectus ID#1, 9.7% of the current pool balance), was recently placed on the servicer’s watchlist in September 2020 as the Q2 2020 DSCR was below threshold at 1.18x, compared with the YE2019 DSCR of 1.53x. The loan is secured by a 430,000 square foot (sf) portion of a 717,000 sf regional mall located in Newport News, Virginia. The mall is owned and operated by Pennsylvania Real Estate Investment Trust (PREIT), which filed for Chapter 11 bankruptcy in early November 2020 with the company citing the impact of the coronavirus pandemic as a driver for the filing. A prepackaged financial restructuring plan was recently confirmed by the bankruptcy court and PREIT is expected to emerge from bankruptcy before the end of the year or in early 2021.

The subject mall is anchored by a noncollateral Macy’s and Dillard’s, as well as a collateral JCPenney and DICK’S Sporting Goods. Although JCPenney remains open as of November 2020, it is noteworthy that the retailer, which occupies 19.7% of the NRA, had a lease expiration of October 2020 and the renewal status is unknown, with a leasing update pending from the servicer as of the date of this press release. Given the increased risks from issuance, DBRS Morningstar analyzed this loan with an elevated PoD to increase the expected loss for this review.

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 North American CMBS Insight Model when determining the ratings to Classes B and D as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan level event risk with the loans in special servicing and on the servicer’s watchlist.

Classes X-A, X-E, and X-F are interest-only (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#1 – Patrick Henry Mall (9.7% of the pool)
-- Prospectus ID#2 – Boca Park Marketplace (6.8% of the pool)
-- Prospectus ID#3 – Fifth Third Center (5.6% 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.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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

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.

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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