DBRS Morningstar Downgrades Two Classes and Changes Trends to Negative on Two Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17

DBRS Limited (DBRS Morningstar) downgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C17 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17 as follows:

-- Class E to B (sf) from BB (low) (sf)
-- Class F to CCC (sf) from B (low) (sf)

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A-3 at AAA (sf)
-- 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 X-B at A (sf)
-- Class D at BBB (low) (sf)
-- Class PST at A (low) (sf)

DBRS Morningstar removed Classes D, E, and F from Under Review with Negative Implications, where they were placed on August 6, 2020.

DBRS Morningstar also discontinued its ratings on Class X-C as the lowest-rated reference obligation, Class F, was downgraded to CCC (sf).

All trends are Stable with the exception of Classes D and E, which have Negative trends, and Class F, which has a rating that does not carry a trend. DBRS Morningstar also designated Class F as having Interest in Arrears.

According to the February 2021 remittance, 58 of the original 67 loans remain in the trust, representing a collateral reduction of 27.9% since issuance. The pool is fairly concentrated by property type, with 44.4% of the pool secured by retail properties and 26.7% of the pool secured by hotel properties. Six loans, representing 13.0% of the current pool balance, are in special servicing, and 9 loans, representing 24.9% of the current pool balance, are on the servicer’s watchlist. The watchlisted loans are being monitored for tenant rollover, low debt service coverage ratios (DSCRs), and/or occupancy issues, some of which are caused by disruptions related to the Coronavirus Disease (COVID-19) pandemic.

The rating downgrades and negative trends reflect the increased risk of loss to the trust via some of the specially serviced loans. This increased risk is most prominently observed in the third-largest loan in special servicing, Holiday Inn Houston Intercontinental (Prospectus ID#17, 2.5% of the pool), which has been in special servicing since March 2017. The special servicer took title of the property in 2018 and, as of the February 2021 remittance, the outstanding servicer advances of $23.3 million exceed the outstanding principal balance of $18.5 million. The most recent appraisal, dated October 2020, valued the property at $20.1 million, down from $30.9 million as of November 2019, but above the servicer’s initial appraisal dated June 2017, which valued the property at $16.1 million. Given the high advances and the low as-is value, DBRS Morningstar believes the loan could be resolved with a loss well in excess of 100.0%. With this review, DBRS Morningstar analyzed this loan with a liquidation scenario, assuming a loss severity in excess of 150.0%. The projected loss for this loan is a primary driver for the rating downgrades and trend changes as previously detailed.

The largest loan in special servicing, San Isidro Plaza I & II (Prospectus ID#5, 5.5% of the pool), is the second-largest loan in the pool and was transferred to special servicing in July 2020 for imminent monetary default as a result of the coronavirus pandemic. The loan is secured by a 284,000-square-foot anchored retail property in Santa Fe, New Mexico. As of the February 2021 remittance, the loan status is late but less than 30 days delinquent and a workout strategy has yet to be determined. According to the September 2020 appraisal, the property was valued at $51.3 million, representing a relatively moderate 15.2% decrease from the issuance value of $60.5 million, and suggests value outside of the current loan balance of $41.2 million. The property is generally well tenanted with major tenants including Lowe’s Home Improvement and Sprouts Farmers Market, but there are concerns surrounding the second-largest tenant, Regal Cinemas (17.3% of net rentable area, lease expires in April 2022), which has been severely affected by the pandemic. Given the exposure to a movie theater tenant, a probability of default (PoD) penalty was applied to increase the expected loss for this loan in the analysis for this review.

The largest loan in the pool, Marriott Philadelphia Downtown (Prospectus ID#1, 11.8% of the pool), was placed on the servicer’s watchlist due to a low DSCR, with the Q3 2020 DSCR reported at -0.07 times (x) compared with the YE2019 DSCR of 2.37x. The pari passu loan is secured by the fee-simple interest in a 1,408-key full-service Marriott Philadelphia hotel located in the Center City District of Philadelphia. The property is the only hotel with direct access to the Pennsylvania Convention Center and convention business is a significant demand driver for the subject, which has been severely affected during the pandemic. According to the trailing 12-months ended January 31, 2021, Smith Travel Research report, the property reported an occupancy rate of 48.7%, an average daily rate of $158.58, and revenue per available room (RevPAR) of $77.20, compared with the comparable set’s RevPAR of $37.09. Despite the decline in performance, the loan has been kept current and, to date, the borrower has not requested relief from the servicer. Given the sharp declines in revenue and likely sustained drop in demand for the foreseeable future, a PoD penalty was applied to increase the expected loss for this loan as part of this review.

At issuance, DBRS Morningstar shadow-rated the Courtyard King Kamehameha’s Kona Beach Hotel Leased Fee loan (Prospectus ID#6, 4.9% of the pool) investment grade. With this review, DBRS Morningstar confirms that the performance of the loan remains consistent with investment-grade loan characteristics.

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 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#1 – Marriott Philadelphia Downtown (11.8% of the pool)
-- Prospectus ID#5 – San Isidro Plaza I & II (5.5% of the pool)
-- Prospectus ID#11 – Dixie Manor (2.8% of the pool)
-- Prospectus ID#33 – Arrowhead Professional Park (1.2% 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.

The ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

The ratings were disclosed to the master servicer and trustee, as representatives of the issuer, through the 17g-5 information provider, master servicer directly, and/or the depositor.

The last rating action on this transaction took place on August 6, 2020, when Classes D, E, X-C and F were placed Under Review with Negative Implications.

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 further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS
Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst: Gloria Au, Assistant Vice President, Credit Ratings
Rating Committee Chair: Rich Carlson, Senior Vice President, Credit Ratings
Initial Rating Date: July 23, 2014

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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North American CMBS Surveillance Methodology (March 6, 2020)
https://www.dbrsmorningstar.com/research/357710/north-american-cmbs-surveillance-methodology

DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021)
https://www.dbrsmorningstar.com/research/373262