DBRS Morningstar Confirms Ratings on All Classes of WFRBS Commercial Mortgage Trust 2014-LC14

DBRS, Inc. (DBRS Morningstar) confirmed its ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-LC14 issued by WFRBS Commercial Mortgage Trust 2014-LC14 as follows:

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

Classes D, E, F, X-B, and X-C were removed from Under Review with Negative Implications where they were placed on August 6, 2020. The trends on Classes D, E, F, X-B, and X-C are Negative, reflecting the continuing performance challenges to the underlying collateral, many of which have been driven by the impact of the Coronavirus Disease (COVID-19) pandemic. The trends on all other classes are Stable.

The rating confirmations reflect the stable performance of the transaction, which has remained in line with DBRS Morningstar’s expectations at issuance. At issuance, the transaction consisted of 71 loans with an original trust balance of $1.3 billion. As of the February 2021 remittance report, 60 loans remain in the transaction with a current trust balance of $867.6 million, representing a collateral reduction of approximately 30.9% since issuance resulting from amortization, the payoff of eight loans, and the liquidation of three loans. In addition, 13 loans totaling $128.5 million have defeased.

Four loans, representing 8.2% of the pool, are in special servicing. One of these loans is the third-largest loan, Williams Center Towers (Prospectus ID#6; 5.0% of the pool), which is secured by two interconnected office towers totaling 765,809 square feet (sf) in Tulsa, Oklahoma. The loan transferred to special servicing in April 2018 shortly after the property’s second-largest tenant, Samson Investment Company, vacated following its bankruptcy filing, which decreased occupancy to 78%. Performance continues to trend downward as occupancy further decreased to its current level of 66.6% following the departure of Bank of Oklahoma (6.76% of net rentable area (NRA)) in December 2019. The tenant exercised an early termination option two years prior to its December 2021 lease expiration. Despite its prolonged time in special servicing, the loan remains current. There has been no updated appraisal since issuance. The second-largest specially serviced loan, Hampton Inn Austin (Prospectus ID#35; 1.2% of the pool) transferred to special servicing in July 2020 for payment default. According to the servicer, the borrower and special servicer are in active discussions for a forbearance. DBRS Morningstar’s concerns are also heightened as performance had been trending downward prior to the coronavirus pandemic with the YE2019 net cash flow (NCF) 38% below the issuance level with a resultant debt service coverage ratio (DSCR) of 1.09 times (x). An updated appraisal from July 2020 valued the property at $13 million, which equates to a loan-to-value ratio of 78.9%. The loan remains delinquent as of the February 2021 remittance.

Sixteen loans, representing 23.8% of the current trust balance, are on the servicer’s watchlist. These loans are generally being monitored for low DSCRs that have generally been driven by disruptions related to the pandemic. Among the watchlisted loans, DBRS Morningstar’s primary concern is with the Canadian Pacific Plaza loan (Prospectus ID#8; 4.3% of the pool), which is secured by a 28-story Class B office property located in the central business district (CBD) of Minneapolis. Occupancy has been trending downward since issuance, with the largest decrease occurring in 2019 when the property’s second-largest tenant, Nilan Johnson Lewis (19.6% of NRA), vacated, which dropped occupancy to its current level of 65%. Furthermore, according to Reis, the submarket vacancy within the Minneapolis CBD was 18.6% as of Q4 2020, which will likely hinder backfilling the vacant space. Mitigating these concerns is the potential upside in revenue as leasing sites are marketing the space for $21.00 per square foot (psf) triple net, which is greater than the $15.50 psf rental rate formerly paid by Nilan Johnson Lewis.

DBRS Morningstar is also concerned with the performance of the West Side Mall (Prospectus ID#14; 2.8% of the pool), which is secured by a 420,434-sf open-air shopping center in Edwardsville, Pennsylvania, approximately three miles northeast of Wilkes-Barre. The property is anchored by Lowe’s Home Improvement (33% of NRA) under a ground lease through 2027, followed by Price Chopper (17% of NRA; leased through 2024) and JOANN Fabrics and Crafts (6% of NRA; leased through 2023). The loan is being monitored on the servicer’s watchlist for performance-related concerns after occupancy decreased to 71% causing the DSCR to fall below breakeven between 2018 and 2019. It appears the borrower was able to backfill some of the vacant space as the annualized Q3 2020 NCF is in line with issuance and covering with a DSCR of 1.25x.

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.

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#6 – Williams Center Towers (5.0% of the pool)
-- Prospectus ID#8 – Canadian Pacific Plaza (4.3% 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 [email protected].

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