DBRS Morningstar Downgrades Two Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21

DBRS Limited (DBRS Morningstar) downgraded the ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2015-C21 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21 as follows:

-- Class C to BB (high) (sf) from BBB (low) (sf)
-- Class PST to BB (high) (sf) from BBB (low) (sf)

In addition, DBRS Morningstar confirmed the ratings on 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 (low) (sf)
-- Class B at A (high) (sf)
-- Class D at CCC (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class G at C (sf)
-- Class 555A at A (sf)
-- Class 555B at BBB (sf)

DBRS Morningstar maintains Negative trends on Classes A-S, B, C, PST, and X-B. Classes D, E, F, and G have ratings that do not carry trends. All remaining classes have Stable trends. The Interest in Arrears designation was removed from Classes D, E and F as those were repaid with the April 2022 remittance but DBRS Morningstar maintains the designation on Class G.

The rating downgrades and Negative trends reflect an increase of DBRS Morningstar’s projected losses since the last rating action, primarily attributable to updated appraised values for loans in special servicing and continued downward pressure on the lower tranches of the capital stack and their propensity for interest shortfalls. As of the April 2022 remittance, there are six loans, representing 25.8% of the pool, that are in special servicing, including four loans in the top 15.

The largest contributor to DBRS Morningstar’s expected losses is the largest loan in the pool, Westfield Palm Desert (Prospectus ID#1, 8.2% of the pool balance). The pari passu $125.0 million whole loan is fully interest only (IO) and is secured by a 572,724-square-foot (sf) portion of a 977,888-sf regional mall located in Palm Desert, California. The loan transferred to special servicing in August 2020 due to payment default. Though it was brought current in February 2022, the March and April 2022 debt service payments remain outstanding as of the date of this publication. The special servicer continues to pursue foreclosure after receivership was granted in October 2021. While in receivership, the property was rebranded as The Shops at Palm Desert and is expected to be marked for sale once foreclosure is complete, according to the special servicer.

An updated appraisal completed in July 2021 valued the property at $55.2 million, down 16.2% from the September 2020 value of $65.9 million and down 73.9% from the appraised value of $212.0 million at issuance. The sharp value decline is generally the product of cash flow declines that preceded the onset of the Coronavirus Disease (COVID-19) pandemic; however, the weakened appeal of regional mall properties, as well as the subject mall’s tertiary location, related limitations in attracting replacement tenants to backfill existing vacancies, and increasing cap rates for this property type were also significant contributors to the loss in value since the subject loan was made in 2015.

It has recently been reported that the loan sponsor, Unibail-Rodamco-Westfield, will be divesting most of its U.S. assets by YE2023. Unibail-Rodamco-Westfield has already handed back the keys to its lenders for five underperforming regional malls. The servicer noted that the loan is structured with a sponsor guaranty that would cover the difference between the outstanding loan balance and the foreclosure proceeds. Although the guaranty is noteworthy, the servicer noted the work remains ongoing to determine the feasibility of enforcing the guaranty. DBRS Morningstar did not give any credit to the guaranty in the analysis. Given the sponsor’s planned exit from the market, the property’s declining performance and value, and the lack of investment interest and available liquidity for regional malls in general, DBRS Morningstar expects that a disposition of the subject property will result in a stressed sale with a loss severity in excess of 65.0%.

As of the April 2022 remittance, 59 of the original 64 loans remain in the pool, representing a collateral reduction of 13.0% since issuance due to loan repayments and scheduled loan amortization. There has been no realized trust loss to date. Loans secured by retail properties represent the greatest property type concentration, accounting for 36.6% of the current pool balance, followed by office properties at 26.0%. There are 13 loans on the servicer’s watchlist, representing 16.9% of the pool balance. In addition, 6.7% of the pool is fully defeased.

The Class 555A and Class 555B certificates are rake bonds backed by the 555 11th Street NW subordinate B note, which is a $57.0 million loan that is composed of a portion of the $177.0 million whole loan secured by the collateral property, a Class A office building in Washington, D.C. The whole loan comprises a $90.0 million pari passu A note ($60.0 million of which is held in the subject trust and backs the pooled bonds); a $30.0 million senior B note (not held in any commercial mortgage-backed securities transactions); and a $57.0 million subordinate B note, of which a $30.0 million pari passu portion was contributed to the subject transaction. The subordinate B note is below the senior B note in payment priority. The performance of the underlying collateral has been strong since issuance. As of September 2021, the servicer reported a 97.0% occupancy rate and a debt-service coverage ratio (DSCR) of 2.24 times (x), compared with the YE2020 DSCR of 2.39x. Given the historically stable performance, the outlook of the loan continues to be consistent with issuance expectations.

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 and X-B are 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#1 – Westfield Palm Desert (8.2% of the pool)
-- Prospectus ID#4 – Ashford Hotel Portfolio (6.3% of the pool)
-- Prospectus ID#5 – Fountainebleau Park Plaza (6.5% of the pool)
-- Prospectus ID#19 – Commerce Green One (1.4% of the pool)

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), 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.

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 resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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