DBRS Morningstar Downgrades Three Classes and Assigns Negative Trends to Three Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20

DBRS Limited (DBRS Morningstar) downgraded the ratings of the Commercial Mortgage Pass-Through Certificates, Series 2015-C20 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20 as follows:

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

With this review, DBRS Morningstar removed Classes E, X-E, and X-F from Under Review with Negative Implications, where they were placed on August 6, 2020.

In addition, DBRS Morningstar confirmed the remaining classes as follows:

-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (sf)
-- Class B at AA (low) (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)

DBRS Morningstar also discontinued its rating on Class X-F as the applicable reference obligation now has a C (sf) rating.

Classes D, E, and X-E have been assigned Negative trends. Class F has a rating that does not carry a trend. All other trends remain Stable.

The rating downgrades and Negative trend assignments reflect the increased risk of loss to the trust for some of the loans in the pool, including two loans in special servicing, Ashford Portfolio – Palm Desert, CA (Prospectus ID #10, 2.2% of the pool) and Ashford Portfolio – Charlotte/Durham, NC (Prospectus ID #11, 1.9% of the pool), which share the same sponsor in Ashford Hospitality Limited Partnership (Ashford). Both loans were liquidated in the analysis for this review as the servicer has indicated Ashford’s commitment to the loans may be in question. Collectively, there are 11 loans, representing 13.3% of the pool, in special servicing. DBRS Morningstar notes significantly increased risks for some of the loans in special servicing that were showing performance declines even before the Coronavirus Disease (COVID-19) global pandemic.

Holiday Inn Express – Syracuse (Prospectus ID #53, formerly 0.8% of the pool) was disposed in February 2021, resulting in a loss to the unrated Class G certificates. The loan was secured by a 95-key Holiday Inn Express located near the Syracuse Airport in Syracuse, New York, and had been in special servicing since 2017. The realized loss was generally in line with DBRS Morningstar’s projections.

As of the March 2021 remittance, 82 of the original 88 loans remain in the pool, with a collateral reduction of 15.3% since issuance. Nine loans, representing 5.1% of the current pool balance, are fully defeased. In addition to the specially serviced loans, there are 18 loans, representing 20.3% of the current trust balance, on the servicer’s watchlist as of the March 2021 remittance. The servicer is monitoring these loans for a variety of reasons, including low debt service coverage ratio (DSCR) and occupancy issues; however, the primary reason for the increase of loans on the watchlist is the coronavirus-driven stress for retail and hospitality properties, with watchlisted loans backed by those property types generally reporting a low DSCR.

The Ashford Portfolio – Palm Desert, CA loan is secured by a portfolio consisting of one extended-stay hotel (Residence Inn Palm Desert) and one limited-service hotel (Courtyard Inn Palm Desert) totaling 281 keys located in Palm Desert, California. Prior to the onset of the coronavirus pandemic, performance had been stable, with a YE2019 DSCR of 1.86x, compared with the YE2018 DSCR of 2.09x and 1.60x at issuance. The loan transferred to special servicing in May 2020 at the sponsor’s request and, since January 2021, the servicer has reported that Ashford has not been responsive to servicer communication and has yet to execute the forbearance agreement approved by the special servicer. The loan has not been paid since March 2020. Given the uncertainty with regard to the sponsor’s commitment to the loan and the likelihood the trust would be faced with selling the properties at a discount to the issuance values if a foreclosure were executed, a liquidation scenario was assumed for this loan.

The Ashford Portfolio – Charlotte/Durham, NC is secured by two limited-service SpringHill Suites hotels located in Charlotte and Durham, North Carolina. Like the Palm Springs portfolio previously discussed, the performance for these hotels was generally stable as compared with issuance figures prior to the onset of the coronavirus pandemic. This loan was also transferred to special servicing in May 2020 at Ashford’s request and also remains outstanding for all payments due after March 2020. According to servicer commentary since January 2021, a non-judicial foreclosure is being pursued, with foreclosure sales for both properties expected to be final by the end of March 2021. The loan was liquidated based on a significant haircut to the issuance valuation, with the projected losses for this and the other Ashford loan supporting the rating downgrades for the lowest-rated classes.

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.

DBRS Morningstar materially deviated from its North American CMBS Insight Model when determining the rating assigned to Class B as the quantitative results suggested a lower rating. The material deviation is warranted given the uncertain loan-level event risk with the loans in special servicing and on the servicer’s watchlist.

Classes X-A, X-B, X-D, and X-E 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.

DBRS Morningstar notes that this press release was amended on March 1, 2022, to include the Negative trend on Class E in the ratings table.

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 [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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