DBRS Morningstar Upgrades Two Classes and Confirms the Remaining Two Classes of MCAP CMBS Issuer Corporation, Series 2014-1

DBRS Limited (DBRS Morningstar) upgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by MCAP CMBS Issuer Corporation as follows:

-- Class E to AAA (sf) from BBB (low) (sf)
-- Class F to BBB (low) (sf) from BB (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class D at AAA (sf)
-- Class G at B (sf)

DBRS Morningstar also removed Classes E, F, and G from Under Review with Negative Implications where they were initially placed on December 20, 2019, because of the concerns and uncertainty surrounding the 1121 Centre Street NW loan (Prospectus ID#7; 17.5% of the current trust balance) and developments with the loan sponsor, Strategic Group. All trends are Stable

The rating upgrades and confirmations reflect the current credit outlook on the remaining collateral. As of the February 2021 remittance, five of the original 32 loans remain in the pool with an aggregate principal trust balance of $19.2 million, representing a 91.4% collateral reduction since issuance. Four of the remaining loans, representing 82.5% of the current trust balance, are performing either in line with or above issuance expectations. Based on the most recent reporting, these loans had a weighted-average debt service coverage ratio of 1.63 times (x), compared with 1.50x at issuance, reflecting an 8.9% net cash flow growth. All four loans are scheduled to mature in 2024; generally, refinancing prospects look favourable for these loans despite the ongoing Coronavirus Disease (COVID-19) pandemic. Three of these loans, representing 68.4% of the current trust balance, have material recourse to the loan’s sponsor.

The 1121 Centre Street NW loan was formerly secured by a Class B mid-rise office building located in Calgary. In October 2020, the property sold for $6.8 million, with proceeds from the sale used to pay down the trust loan, outstanding advances, and other fees. A balance of $3.4 million remains in the trust as of the February 2021 reporting and is recourse to the borrowing entity and to the guarantor, Riaz Mamdani & IEC Ltd., for the full amount of the outstanding debt, which the lender is currently pursuing through legal remedies; however, given the ongoing pandemic, the timeline for resolution is unknown. At issuance, the property had a value of $16.9 million ($269 per square foot (psf)), however, given the decline in both occupancy and net cash flow being driven by soft market conditions coupled with the influx of new supply and lack of demand for the product type amid the ongoing pandemic, the sale price declined to $6.8 million ($108 psf). While the loan is structured with full recourse provisions, it is unknown if the sponsor has capital available to fulfill this obligation or if the guaranty will be enforceable. In the event that the loan does experience a fully realized loss of the outstanding loan balance, it would very likely be contained to the non-rated first loss piece in the capital stack of this transaction.

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.

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 loan in the transaction:
-- Prospectus ID#7 – 1121 Centre Street NW (17.5% 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 Canadian 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.

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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