DBRS Morningstar Downgrades Two Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C14

DBRS Limited (DBRS Morningstar) downgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C14 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C14 as follows:

-- Class X-C to B (high) (sf) from BB (low) (sf)
-- Class G to B (sf) from B (high) (sf)

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 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 (high) (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (sf)

DBRS Morningstar changed the trends of Classes X-C, F, and G to Negative from Stable. All other trends are Stable.

The Negative trends are reflective of DBRS Morningstar’s concerns surrounding the five loans in special servicing. In general, however, the transaction has performed in line with issuance expectations. As of the February 2021 remittance, the initial trust balance of $1.5 billion has been reduced by 45.3% to $808.9 million, with 42 of the original 58 loans remaining in the pool. The transaction is concentrated by property type as 16 loans, representing 39.8% of the pool, are secured by retail collateral. Additionally, there are three loans, representing 4.4% of the pool, that are fully defeased.

As of the February 2021 remittance, 11 loans, representing 29.4% of the pool, are on the servicer’s watchlist, and there are five loans, representing 15.6% of the pool, in special servicing. The loans on the watchlist are being monitored for various reasons, including low debt service coverage ratio or occupancy, tenant rollover risk, and/or pandemic-related forbearance requests.

The largest loan in special servicing, Aspen Heights – Columbia (Prospectus ID#7, 6.1% of the pool), is secured by a 318-unit student housing apartment complex located in Columbia, Missouri, three miles southeast of the University of Missouri. The loan transferred to special servicing in November 2017 for payment default and has performed below a breakeven level since 2015. The property has struggled with increased supply in the market as well as declining enrolment numbers from 2015 to 2018. Transfer of ownership to the lender occurred in December 2020 and the loan is now real estate owned. A new appraisal dated November 2020 valued the collateral at $28.7 million on an as-is basis, representing a 60% decline from the issuance value of $71.8 million and a 16.3% decline from the July 2019 value of $34.3 million. DBRS Morningstar’s analysis assumed a loss severity in excess of 70%, based on the November 2020 appraisal figure.

The second-largest loan in special servicing, Round Rock Crossing (Prospectus ID#14, 3.7% of the pool), is secured by an anchored retail centre located in Round Rock, Texas. The loan transferred to special servicing in June 2020 for imminent monetary default as a result of the Coronavirus Disease (COVID-19) pandemic. The loan was previously monitored on the servicer’s watchlist following the departure of its largest tenant, Gander Mountain (19.9% of net rentable area (NRA)) in 2017. The property’s second-largest tenant, Stein Mart (14.7% of NRA), has also vacated after its parent company filed for bankruptcy in the summer of 2020. Servicer commentary from September 2020 to November 2020 stated that the borrower intended to turnover the collateral back to the lender but more recent commentary now shows that the special servicer is in discussion with the borrower about potential new leases and solutions to stabilize the property. A loss severity in excess of 30.0% was assumed as part of this review.

At issuance, DBRS Morningstar shadow-rated one investment-grade loan, JW Marriott and Fairfield Inn & Suites (Prospectus ID#5, 9.0% of the pool). With this review, DBRS Morningstar confirms the performance of the loan remains in line with its respective shadow ratings.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the ratings assigned to Classes C and PST, as the quantitative results suggested a higher rating on the classes. The material deviations are warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.

Classes X-A, X-B, and X-C 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#7 – Aspen Heights - Columbia (6.1% of the pool)
-- Prospectus ID#14 – Round Rock Crossing (3.7% 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.

On February 26, 2021, the press release was updated to reflect the downgrade and trend change to Class X-C.

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.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577