DBRS Morningstar Confirms All Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C23; Trend Changed to Negative on Three Classes

DBRS Limited (DBRS Morningstar) confirmed the ratings on all the classes of Commercial Pass-Through Certificates, Series 2015-C23 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C23 as follows:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class PST at A (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at BB (low) (sf)
-- Class X-FG at B (sf)
-- Class G at B (low) (sf)

With this review, DBRS Morningstar changed the trends on Classes F, G, and X-FG to Negative from Stable. All other trends remain Stable.

According to the March 2021 remittance, 67 of the original 75 loans remain in the trust, with loan repayments and amortization contributing to a collateral reduction of 17.2% since issuance. Five loans, representing 2.8% of the current pool balance, are fully defeased. There have been no losses incurred to date and the increased credit support and generally stable performance of the underlying loans supports the rating confirmations with this review.

There are challenges for the pool, some of which are driven by events in motion prior to the Coronavirus Disease (COVID-19) pandemic, but the impact of the pandemic on retail and hotel properties in particular have introduced noteworthy increased risks considered for this review. Three loans, representing 5.4% of the current pool balance, are in special servicing. Both of those loans are backed by hotel properties and both were post-coronavirus transfers. There are an additional 15 loans, representing 32.8% of the current pool balance, on the servicer’s watchlist. The watchlisted loans are being monitored for a variety of issues including tenant rollover, low debt service coverage ratios (DSCRs) and/or occupancy issues, property damage, or coronavirus-related forbearance requests.

The Negative trends assigned to three classes reflect the increased risk of loss to the trust for the largest specially serviced loan, Hilton Garden Inn W 54th Street (Prospectus ID#7, 4.4% of the pool). The pari passu loan is secured by a 401-key, select-service hotel located in Midtown Manhattan, with pari passu debt held across three CMBS transactions, including the DBRS Morningstar-rated Morgan Stanley Capital I Trust 2015-MS1 transaction and another transaction not rated by DBRS Morningstar. The loan was transferred to special servicing in June 2020 for imminent monetary default. Although the loan reported DSCR figures that were generally healthy over the last five years, cash flows have consistently lagged the issuance expectations due to a combination of lower revenues and higher expenses. Most recently, the property has been hard hit amid the coronavirus pandemic, which has ground travel to New York to a near halt as both business and leisure travel has declined significantly.

After an excess cash reserve used to pay debt service shortfalls was depleted in October 2020, a loan modification proposal was submitted by the borrower, which remains under review by the servicer as of March 2021. The loan was reported 30 days delinquent as of the March 2021 reporting. Although the property’s performance prior to the coronavirus pandemic was relatively strong (a factor that should incentivize the borrower to continue working with the special servicer to resolve the outstanding defaults), there are significantly increased risks for this loan regarding uncertainties since issuance in the sponsor’s commitment to the loan and the current prospects for a return to historical performance levels for the collateral hotel. As such, DBRS Morningstar applied a probability of default penalty to increase the expected loss in the analysis for this review.

At issuance, DBRS Morningstar shadow rated the 32 Old Slip Fee loan (Prospectus ID#2; 7.1% of the pool) investment grade. With this review, DBRS Morningstar confirmed that the performance of this loan remains consistent with investment-grade loan characteristics.

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.

Classes X-A, X-B, and X-FG 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 issuance metrics and all historical surveillance commentary on the DBRS Viewpoint platform.

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 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.

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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