DBRS Morningstar Confirms All Ratings, Changes Six Trends to Negative on Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19

DBRS Limited (DBRS Morningstar) confirmed the ratings for all classes of Commercial Pass-Through Certificates, Series 2014-C19 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19 as follows:

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

The trends on Classes X-D, D, X-E, E, X-F, and F are Negative while the trends on all other classes are Stable. DBRS Morningstar also removed Classes X-E, E, X-F, and F from Under Review with Negative Implications where they had been placed on August 6, 2020.

The Negative trends are reflective of the increased risk of loss to the trust from the underlying loans in the pool that make up the eight loans (6.1% of the pool) in special servicing and the 19 loans (33.7% of the pool) on the servicer’s watchlist. As of the February 2021 remittance, the initial trust balance has been reduced by 26.6% to $1.08 billion from $1.47 billion, with 66 of the original 77 loans remaining in the pool. The transaction is concentrated by property type as 10 loans, representing 30.0% of the pool, are secured by office assets and 25 loans, representing 20.8% of the pool, are secured by retail properties. Additionally, three loans, representing 1.8% of the pool, are fully defeased.

Three of the nine specially serviced loans were liquidated from the pool with this review, suggesting the losses are confined to the unrated Class G certificates. However, the reduced credit support for the lowest rated bonds, as well as the increased expected loss for some of the other loans in the pool for which probability of default (PD) penalties were applied, was a primary driver of the Negative trends.

The second-largest largest loan in special servicing, 333 Northbelt Houston (Prospectus ID#24; 1.1% of the pool), is secured by a 220,717 square foot Class B office building located in Houston. The property’s occupancy rate began to fall beginning in 2016 and the most recent information provided by the servicer indicated an occupancy rate of just over 50.0% as of September 2020. The loan has been in special servicing since 2018 and the workout timeline has been extended, in part because of the borrower’s bankruptcy filing in January 2019. The special servicer’s commentary suggests recent activity in the courts will allow the servicer to initiate remediation efforts, but no concrete updates have been provided to date. The most recent appraisal obtained by the special servicer, dated October 2020, provided a very low as-is value of $3.1 million, down sharply from the issuance value of $18.0 million. Based on the October 2020 value, a liquidation scenario implying a loss severity approaching 100% was assumed for this review. The second-largest specially serviced loan that was liquidated for this review, Towne Place Suites Vernal (Prospectus ID#43; 0.6% of the pool) is secured by an 85-key extended-stay hotel located in Vernal, Utah. The loan was transferred to special servicing in June 2019 for imminent monetary default and the servicer is expected to proceed with foreclosure. The November 2020 appraisal obtained by the special servicer provided an as-is value of $3.5 million, down 68.0% from the issuance value. Based on this value, the loan was liquidated from the pool with an implied loss severity in excess of 65.0%.

The third and final loan liquidated in the analysis for this review, La Quinta Inn & Suites Broussard (Prospectus ID#57; 0.4% of the pool), is secured by a 61-key limited-service hotel in Broussard, Louisiana. The loan was transferred to special servicing in April 2020 due to payment default in light of disruptions related to the Coronavirus Disease (COVID-19) pandemic. The property became real estate owned through a deed-in-lieu in November 2020, with the servicer currently evaluating a strategy for moving the loan’s resolution forward. An October 2020 appraisal provided an as-is value of $4.0 million, down 49.0% from issuance. Based on this appraisal, the loan was liquidated from the pool with an implied loss severity in excess of 35.5%.

The remaining loans in special servicing were analyzed with PD penalties to increase the expected loss in the analysis, as appropriate, based on the increased risks and prospects for resolution for each.

Of the 19 loan on the servicer’s watchlist, 16 are being monitored for performance issues, including low and declining debt service coverage ratios (DSCRs) and/or occupancy-related issues. The largest of the loans on the servicer’s watchlist is Linc LIC (Prospectus ID#5; 6.1% of the pool), which was flagged for a declining occupancy rate. The loan is secured by a 709-unit luxury multifamily building located in Long Island City, New York. The loan was added to the servicer’s watchlist in January 2021 after the property’s occupancy rate declined to 67.0% in September 2020, down from its YE2019 rate of 91.0%. The second-largest loan on the watchlist, One & Only Ocean Club (Prospectus ID#8; 4.8% of the pool), is being monitored for a low DSCR, which was most recently calculated for the trailing twelve months ended September 2020 when it was -0.04 times (x), down from the YE2019 DSCR of 1.82x. The servicer’s commentary suggests a relief request is expected or possibly in process, but no loan modification has been papered to date. In the case of these loans, the historically stable performance of the underlying collateral is considered a mitigating factor to the increased risks brought by the coronavirus pandemic, but the likelihood that performance declines will be sustained through the near to moderate term was also considered and, as a result, both loans were analyzed with PD penalties to increase the expected loss for this review.

At issuance, DBRS Morningstar shadow-rated the 300 North Lasalle loan (Prospectus ID#2; 11.5%) as investment grade. DBRS Morningstar confirmed 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, X-B, X-C, X-D, X-E, and X-F 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#5 – Linc LIC (6.1% of the pool)
-- Prospectus ID#8 – One & Only Ocean Club (4.8% of the pool)
-- Prospectus ID#24 – 333 Northbelt Houston (1.1% 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 the 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 [email protected].

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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