DBRS Morningstar Confirms All Classes, Two With Negative Trends, on Wells Fargo Commercial Mortgage Trust 2015-C31

DBRS, Limited. (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C31 issued by Wells Fargo Commercial Mortgage Trust 2015-C31 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

Classes D, E, F, and X-D were removed from Under Review with Negative Implications where they were placed on August 6, 2020. With this review, the trends Classes E and F are Negative, while the trends on the remaining classes remain Stable.

In general, the pool has performed as expected at issuance, despite the high concentration of loans secured by retail properties (25.9%) and lodging properties (21.1%) in the remaining pool as of the November 2020 remittance. Of the original 102 loans, 94 loans remain, representing a collateral reduction of 7.3% since issuance. Five loans, representing 3.3% of the current pool balance, are fully defeased. Based on the YE2019 financials, the pool reported a weighted-average (WA) debt service coverage ratio (DSCR) of 1.69 times (x), compared with the Issuer’s DSCR of 1.63x. As of the November 2020 remittance, 21 loans, representing 31.5% of the pool, are on the servicer’s watchlist, and four loans are in special servicing representing 2.5% of the pool. The watchlisted loans are being monitored for various reasons, including delinquent payments, servicing trigger events, low debt service coverage ratios (DSCRs), and/or Coronavirus Disease (COVID-19) pandemic-related forbearance requests.

The largest loan in special servicing is Holiday Inn Lafayette (Prospectus ID#23, 1.2% of the pool), which was liquidated from the pool for this analysis. The loan is secured by a 147-key full-service hotel located in Lafayette, Indiana. The loan was transferred to special servicing in March 2019 for delinquent payments. As of the November 2020 remittance, the loan was over 120 days delinquent and the servicer has reported a July 2020 appraised value of $13.0 million, well below the issuance value of $17.2 milion and the first appraisal obtained by the special servicer, dated October 2019, that showed an as-is value of $18.8 million. As of November 2020, the trust exposure to the loan was just shy of $11.8 million, with the July 2020 suggesting value outside the trust; however, DBRS Morningstar believes the value could further deteriorate as the effects of the pandemic bear out, and, as such, a 20.0% haircut to the July 2020 valuation was assumed in the analysis for this review, resulting in a loss severity in excess of 20.0% in the DBRS Morningstar liquidation scenario.

According to the November 2020 remittance, 21 loans are on the servicer’s watchlist, representing 31.5% of the current pool balance. The largest loan on the servicer’s watchlist, Sheraton Lincoln Harbor Hotel (Prospecus ID#2, 6.5% of the pool), is being monitored for a low DSCR. The servicer reported a T-12 ended June 2020 DSCR of 0.35x, down from the YE2019 DSCR of 1.53x. The decline in DSCR is directly attributable to disruptions to the lodging industry as a result of the coronavirus pandemic. The loan first went late with the November 2020 reporting, where the loan showed late but less than 30 days delinquent. The loan was analyzed with a probability of default penalty to increase the expected loss in the analysis 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.

Classes X-A, X-B, and X-D 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#2 – Sheraton Lincoln Harbor Hotel (6.5% of the pool)
-- Prospectus ID#4 – Courtyard Marriott – Tacoma (3.3% of the pool)
-- Prospectus ID#6 – Hampton Inn & Suites – Jacksonville Beach (3.0% of the pool)
-- Prospectus ID#7 – Patrick Henry Mall (2.6% 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.

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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