DBRS Morningstar Downgrades Two Classes and Maintains Negative Trends for Two Classes of WFRBS Commercial Mortgage Trust 2014-C20, Confirms Remaining Ratings

DBRS, Inc. (DBRS Morningstar) downgraded the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C20 issued by WFRBS Commercial Mortgage Trust 2014-C20 as follows:

-- Class C to B (low) (sf) from BBB (low) (sf)
-- Class D to C (sf) from CCC (sf)

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

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SFL at AAA (sf)
-- Class A-SFX at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at A (low) (sf)
-- Class E at C (sf)
-- Class F at C (sf)

Classes B and C continue to carry Negative trends. Classes D, E, and F have ratings that do not carry trends and maintain their interest in arrears designations. All other trends are Stable.

DBRS Morningstar previously downgraded six classes of this transaction in March 2021, based on increased loss projections for three of the five largest loans in the pool (for additional information on those rating actions, please see the press release dated March 8, 2021). Two of these loans are backed by regional malls in Woodbridge Center (Prospectus ID#1—14.1% of the trust balance) and Brunswick Square (Prospectus ID#6—4.8% of the trust balance). At last review, based on valuations obtained by the special servicer and/or haircuts to issuance values, DBRS Morningstar expected liquidation losses to be contained below the Class D certificate. In 2021, all three loans received updated appraisals that suggested higher loss severities, prompting further downgrades to Classes C and D and maintained Negative trends with this review.

At issuance, the trust comprised 98 fixed-rate loans secured by 142 commercial and multifamily properties with a trust balance of $1.25 billion. As of the January 2022 remittance, 79 loans remain in the trust with a trust balance of $855.0 million, representing a 31.7% collateral reduction since issuance. Of the remaining loans, 14 are defeased, representing 10% of the pool. One loan, Candlewood Suites – Denham Springs (Prospectus ID#65), was liquidated from the trust in July 2021, resulting in a 23.0% loss severity, a figure that was generally in line with DBRS Morningstar’s projections as part of the March 2021 surveillance review of this transaction.

The trust is concentrated by loans secured by retail properties, representing 41.9% of the trust balance. The concentration is primarily driven by the Woodbridge Center, Worldgate Centre (Prospectus ID#3—6.6% of the trust balance), and Brunswick Square. The pool has a relatively low concentration of loans secured by tertiary and rural properties, with 20 loans totaling 16.7% of the trust balance.

As of the January 2022 remittance, four loans, totaling 26.3% of the trust balance, are in special servicing, including three of the five largest loans. An additional 14 loans, totaling 19.1% of the trust balance, are on the servicer’s watchlist. Most of the watchlist loans are secured by retail and hotel properties that were affected by the Coronavirus Disease (COVID-19) pandemic.

The largest specially serviced loan, Woodbridge Center, is secured by the fee-simple interest in a super-regional mall in Woodbridge, New Jersey, approximately 30 miles southwest of Manhattan. The mall lost two anchors in recent years: noncollateral anchor Lord & Taylor in December 2019 and collateral anchor Sears in April 2020. The loan sponsor, an affiliate of Brookfield Property Partners, notified the servicer of imminent monetary default, and the loan transferred to the special servicer in June 2020. In October 2021, the special servicer filed a foreclosure complaint, and Jones Lang LaSalle was appointed receiver. Foreclosure litigation is ongoing and the borrower has not contested foreclosure actions. The special servicer anticipates the foreclosure to be completed by September 2022. The special servicer initially obtained an appraisal dated December 2020, which valued the property at $104.0 million, down from $366.0 million at issuance. While that value decline is startling, the latest appraisal on file, dated September 2021, showed an even further decline, to $90.0 million. Based on the latest valuation, DBRS Morningstar liquidated the loan in the analysis, with a loss severity exceeding 75%.

Brunswick Square is secured by a two-anchor regional mall in East Brunswick, New Jersey, owned and operated by Washington Prime Group (WPG). DBRS Morningstar initially added the loan to its Hotlist in February 2019 because of concerns over the property’s anchor tenancy mix and declining sales performance. In addition, there were concerns regarding WPG’s financial wherewithal. The firm ultimately filed for bankruptcy in June 2021. The loan transferred to the special servicer in July 2021 for imminent monetary default following the bankruptcy filing; at the time of the transfer, WPG expressed interest in consenting to a foreclosure sale, which is scheduled to occur in May 2022. This mall has also seen a drastic decline in the appraised value since issuance, with the August 2021 appraisal showing an as-is value of $33.5 million, well below the issuance figure of $113.0 million. DBRS Morningstar assumed a loss severity in excess of 65% in the analysis for this review.

In the analysis for this review, DBRS Morningstar liquidated three loans, including the second-largest loan in special servicing, Sugar Creek I & II (Prospectus ID#4—7% of the trust balance), which is secured by an office property in Houston. The estimated total loss amount for the three loans is $145.7 million. These losses would erode the balances of the two lowest-rated classes (Classes E and F) and much of the Class D certificate balance, supporting the C (sf) rating on all three and contributing to the downgrade for Class C with this review.

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.

Class X-A is an interest-only (IO) certificate that references 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#1 – Woodbridge Center (14.1% of the pool) – DBRS Morningstar Hotlist
-- Prospectus ID#3 – Worldgate Centre (6.6% of the pool) – DBRS Morningstar Hotlist
-- Prospectus ID#4 – Sugar Creek I & II (7.0% of the pool) – DBRS Morningstar Hotlist
-- Prospectus ID#6 – Brunswick Square (4.8% of the pool) – DBRS Morningstar Hotlist

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 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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