DBRS Morningstar Downgrades Four Classes and Discontinues One Class of JPMCC Commercial Mortgage Securities Trust 2014-C20, Removes Three Classes from UR-Neg.

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C20 issued by JPMCC Commercial Mortgage Securities Trust 2014-C20 as follows:

-- Class D to BB (low) (sf) from BBB (low) (sf)
-- Class E to B (low) (sf) from BB (sf)
-- Class F to CCC (sf) from B (high) (sf)
-- Class G to CCC (sf) from B (sf)

DBRS Morningstar also confirmed the following classes:

-- Class A-3A1 at AAA (sf)
-- Class A-3A2 at AAA (sf)
-- Class A-4A1 at AAA (sf)
-- Class A-4A2 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 (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class EC at A (low) (sf)

DBRS Morningstar discontinued its rating on Class X-C, a notional class that references Classes E, F, G, and NR as 81.7% of the referenced classes are rated either CCC (sf) or not rated.

The trends for Classes C, D, E, and EC were changed to Negative from Stable. Classes F and G do not have trends as those classes carry a CCC (sf) rating. All other trends are Stable. The Under Review with Negative Implication designation was removed on Classes F, G and X-C, where those were placed on August 6, 2020, as a result of the Coronavirus Disease (COVID-19) stress tests.

The downgrades and negative trends reflect the deteriorating performance of the transaction since last review, especially given the negative outlook for Lincolnwood Town Center (Prospectus ID#4 – 7.1% of the trust balance). At issuance, the trust consisted of 37 loans secured by 54 commercial and multifamily properties with a trust balance of $878.0 million. Per the February 2021 remittance report, there were 27 loans secured by 44 commercial properties remaining in the trust with a trust balance of $655.5 million, representing a collateral reduction of 25.3% since issuance. The pool is very concentrated with the largest 15 loans representing 85.8% of the trust balance. The largest loan, The Outlets at Orange (Prospectus ID#1 – 13.7% of the trust balance), was shadow-rated investment grade by DBRS Morningstar at issuance and those characteristics continue to be demonstrated. The trust has minimal exposure to loans secured by hospitality properties, with just three loans representing 3.0% of the trust balance. Additionally, three loans, comprising 5.3% of the trust balance, are fully defeased.

DBRS Morningstar notes there are three loans, totaling 20.1% of the trust balance, that have upcoming loan maturity dates in 2021. The upcoming loan maturity dates present refinance risk, especially given the unstable capital markets. The borrower for the 55 Broadway loan (Prospectus ID#10 – 5.3% of the trust balance) has requested a loan extension from the master servicer as the loan is scheduled to mature in April 2021. DBRS Morningstar believes the loan is likely to be repaid in full in the near to moderate term. The property’s occupancy rate declined to 80.7% as of December 2020 from 89.1% at issuance; however, the property has reported some recent leasing activity and debt service coverage has remained adequate.

Per the February 2021 remittance report, there are three loans, comprising 11.8% of the trust balance, in special servicing. The largest specially serviced loan, Lincolnwood Town Center, is secured by the fee interest in an enclosed mall located in Lincolnwood, Illinois, approximately 13 miles north of the Chicago central business district. The mall is owned and operated by Washington Prime Group (WPG) and is anchored by Kohl’s and The RoomPlace. The mall previously lost an original anchor tenant, Carson Pirie Scott, in Q3 2018 following Bon Ton’s bankruptcy filing. Performance had been deteriorating prior to the coronavirus pandemic as the property reported a net cash flow (NCF) of $2.9 million, considerably below the issuer’s underwritten NCF of $4.8 million at issuance. The loan transferred to the special servicer in May 2020 for imminent monetary default as a result of the coronavirus pandemic and a forbearance agreement was executed. The agreement allowed six months of deferred debt service payments and monthly reserve deposits between May 2020 and November 2020. The deferred payments were to be repaid in 12 equal installments over the subsequent 12 months; however, the special servicer noted the borrower is in default for the January 2021 payment and communicated to the special servicer that they do not plan to contribute additional capital to the property. The special servicer plans to appoint a receiver in March 2021. The property was reappraised in May 2020 for $21.1 million, down 76.3% from the $89.1 million appraised value at issuance. In addition, WPG recently missed a payment on its corporate debt, introducing additional risk on the subject loan. Given the reduction in asset value and increasing sponsorship concerns, DBRS Morningstar anticipates a substantial loss to the trust. The loan was liquidated from the trust as part of this analysis based on the most recent appraised value, which resulted in an implied loss severity in excess of 70.0%.

There are an additional five loans, representing 17.0% of the trust balance, on the servicer’s watchlist. DBRS Morningstar is closely monitoring the Westminster Mall loan (Prospectus ID#11 – 4.0% of the trust balance) as the loan is also sponsored by WPG and the mall has exhibited decreasing NCFs since issuance. The pari passu participation note is secured by a portion of the 1.3-million-square-foot regional mall in Orange County, California. The mall is anchored by collateral tenant JCPenney and noncollateral tenants Macy’s and Target. The loan was added to the servicer’s watchlist in August 2018 following the loss of the noncollateral Sears anchor. A September 2020 rent roll showed the collateral was 87.9% occupied, and management reported nine new leases, totaling 2.3% of the net rentable area, were executed in Q4 2020. According to a filing with the U.S. Securities and Exchange Commission, the sponsor entered into a $160.1 million purchase and sale agreement with Taylor Morrison for the sale of adjacent (noncollateral) 43.1 acres for a large-scale redevelopment. DBRS Morningstar believes the redevelopment could ultimately benefit the collateral in the long term; however, the execution risk is noteworthy, especially given the financially stressed sponsor and this loan was modeled with an increased expected loss during this review.

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 CMBS North American CMBS Insight Model when determining the rating assigned to Class 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 the developments surrounding the Westminster Mall (Prospectus ID#11 – 4.0% of the trust balance).

Classes X-A and X-B 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#4 – Lincolnwood Town Center (7.1% of the pool) – DBRS Morningstar Hotlist Loan
-- Prospectus ID#6 – 200 West Monroe (7.4% of the pool) - DBRS Morningstar Hotlist Loan
-- Prospectus ID#11 – Westminster Mall (4.0% of the pool) - DBRS Morningstar Hotlist Loan
-- Prospectus ID#15 – University Gate Apartments (2.9% 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 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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