DBRS Morningstar Confirms Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2016-C32; Removes Two Classes from Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-C32 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2016-C32 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- 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 B at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class C at AA (sf)
-- Class X-D at A (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)

With this review, Classes E and F were removed from Under Review with Negative Implications, where they were placed on August 6, 2020. All trends are Stable with the exception of Class F, which carries a Negative trend. The Negative trend reflects the continued performance challenges for the underlying collateral, much of which has been driven by the impact of the Coronavirus Disease (COVID-19) pandemic. In addition to one loan, representing 5.8% of the pool, being in special servicing as of the November 2020 remittance, DBRS Morningstar also notes that the pool has a significant concentration of retail and hospitality properties, representing 40.5% and 9.8% 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.

As of the November 2020 remittance, all 56 of the original loans remain in the pool, with a collateral reduction of just 3.0% since issuance as a result of loan amortization. One loan, Wolfchase Galleria (Prospectus ID#3, 5.8% of the pool) is specially serviced and one other loan, James Creek and Foxfire Student Housing (Prospectus ID#25, 1.1% of the pool), is greater than 30 days delinquent. Additionally, nine loans, representing 10.5% of the pool, are on the servicer’s watchlist. These loans are being monitored for various reasons, including low debt service coverage ratio (DSCR) or occupancy, tenant rollover risk, and/or pandemic-related forbearance requests.

The transaction’s sole specially serviced loan, Wolfchase Galleria, transferred to special servicing for imminent default in June 2020 after the borrower’s relief request as a result of the pandemic; it is greater than 30 days delinquent as of the November 2020 remittance. The loan is secured by the interior portion of a 1.3 million square foot (sf) Simon-operated regional mall located in Memphis, Tennessee. The mall saw its Sears anchor vacate in 2018 and has been unable to re-lease the space since. The property has been negatively affected by new competition in the area and had previously been monitored on the servicer’s watchlist for low occupancy and low DSCR, most recently reporting a year-end 2019 DSCR of 1.17 times (x) and occupancy rate of 82.9%. The special servicer’s commentary notes a prenegotiation letter has been executed and a workout strategy is still to be determined. Given the risks surrounding the collateral property, this loan was analyzed with an elevated probability of default for this review.

At issuance, DBRS Morningstar shadow-rated two loans, Hilton Hawaiian Village (Prospectus ID#1; 7.2% of the pool) and Potomac Mills (Prospectus ID#5; 5.9% of the pool), investment grade, supported by the loans’ strong credit metrics, strong sponsorship strength, and historically stable collateral performance. With this review, DBRS Morningstar confirms that the characteristics of these loans remain consistent with the investment-grade shadow rating.

ESG CONSIDERATIONS
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#3 – Wolfchase Galleria (5.8% 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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