DBRS Morningstar Downgrades Five Classes and Discontinues Three Classes of Morgan Stanley Capital I Trust 2015-UBS8

DBRS Limited (DBRS Morningstar) downgraded five classes of Commercial Mortgage Pass-Through Certificates, Series 2015-UBS8 issued by Morgan Stanley Capital I Trust 2015-UBS8 (the Issuer) as follows:

-- Class X-D 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)
-- Class G to C (sf) from CCC (sf)
-- Class H to C (sf) from CCC (sf)

In addition, DBRS Morningstar confirmed the following classes:

-- 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 AA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)

DBRS Morningstar has discontinued its ratings on Classes X-F, X-G, and X-H as their reference classes are rated C (sf). DBRS Morningstar changed the trend for Class C to Negative from Stable. The trends for Classes D, E, and X-D are Negative. Classes F, G, and H do not carry a trend. The trends on the remaining classes are Stable. In addition, Classes F, G, and H still carry an interest in arrears designation.

The Negative trends and downgrades reflect DBRS Morningstar’s concerns with the two largest specially serviced loans, which collectively represent 7.7% of the current pool balance. Two of the three loans are real estate owned (REO) retail properties, which are likely to be liquidated from the pool with sizable losses to the trust. DBRS Morningstar anticipates losses to affect up to Class F based on the current credit profile.

As of the October 2021 remittance, 56 of the original 57 loans remain in the pool, representing a collateral reduction of 6.1% since issuance. Four loans, representing 9.0% of the pool, are fully defeased. There are 14 loans, representing 22.1% of the pool, on the servicer’s watchlist. Seven loans, representing 11.9% of the pool, are in special servicing. The largest specially serviced loan, Mall de las Aguilas (Prospectus ID#6, 3.1% of the pool balance), is secured by a 350,000-square-foot (sf) portion of a 450,000-sf regional mall in Eagle Pass, Texas, which is along the United States and Mexico border. The loan transferred to special servicing in June 2020, and the property became REO in July 2021. The servicer will attempt to stabilize the property before marketing it for sale. At issuance, the collateral for the loan had an appraised value of $40.0 million, equating to a loan-to-value ratio of 63%. Net cash flow (NCF) in 2020 was 54% below the Issuer's underwritten NCF, and the debt service coverage ratio was 1.01 times. Occupancy was 90% in March 2020, the most recent available, roughly in line with the occupancy at issuance. The mall is anchored by JCPenney (22.5% of the net rentable area (NRA), through November 2022), Burlington (noncollateral), and a seven-screen Cinemark theatre (6.5% NRA, through September 2020). Cinemark remains in occupancy as of the date of this press release, suggesting that a lease extension has been negotiated. DBRS Morningstar has requested an updated rent roll.

Given the consistent cash flow declines since issuance and the loan becoming REO in July 2021, DBRS Morningstar projects a significant value decline from the mall’s issuance value of $40.0 million. The mall struggled significantly in 2020 because of the border closures that resulted from the Coronavirus Disease (COVID-19) pandemic. With the reopening of the U.S./Mexico border in November 2021, the servicer may be able to stabilize the mall somewhat in the near term. Nonetheless, DBRS Morningstar anticipates the loan will be liquidated from the trust with a loss and analyzed this loan with an implied loss severity exceeding 70.0%.

The second-largest loan in special servicing is the WPC Department Store Portfolio loan (Prospectus ID#10, 2.6% of the pool). The trust debt represents a $19.5 million pari passu participation in a $57.2 million whole loan secured by a portfolio of six now-vacant department store boxes with a combined 1,002,731 sf throughout multiple states, with the largest concentration in Wisconsin. At issuance, the boxes were occupied by affiliates of The Bon-Ton Stores, Inc., which filed for bankruptcy and was ultimately liquidated in 2018. The loan transferred to special servicing in August 2018 and became REO in October 2019. The most recent appraisal reported by the servicer valued the collateral at $25.3 million, down 72% from the appraised value of $89.5 million at issuance.

Of the original six collateral properties, two have been sold. According to special servicer commentary, the Bay Park property (which represents 14.2% of the loan by allocated balance) was sold for $3.0 million in November 2020 and the Southridge property (which represents 20.1% of the loan) was sold for $3.3 million in July 2021. The sale prices of $3.0 million and $3.3 million for the Bay Park and Southridge properties represent value declines of 76% and 82%, respectively, compared with their appraised values at issuance. The proceeds from these property sales repaid outstanding servicer advances, so no proceeds went through to the trust bonds. DBRS Morningstar expects similar dispositions for the remaining collateral properties and analyzed this loan using a liquidation scenario with an implied loss severity exceeding 90.0%.

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-D 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#6 – Mall de las Aguilas (3.1% of the pool)
-- Prospectus ID#10 – WPC Department Store Portfolio (2.6% 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 26, 2021), 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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