DBRS Morningstar Maintains Negative Trends on Three Classes, Confirms All Ratings of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-C18 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 as follows:

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

The trends on Classes D, E, and X-B remain Negative, reflecting the continuing performance challenges of the specially serviced loans. All other trends are Stable except for Class F, which is assigned a rating that does not carry a trend. The Interest in Arrears designation has been removed for Class E and Class F continues to have an Interest in Arrears designation.

DBRS Morningstar also confirmed the ratings on the following non-pooled rake bonds of the Commercial Mortgage Pass-Through Certificates, Series 2014-C18, which are backed by the $244.4 million subordinate B note of the 300 North LaSalle loan:

-- Class 300-A at AA (high) (sf)
-- Class 300-B at A (sf)
-- Class 300-C at BBB (sf)
-- Class 300-D at BB (sf)
-- Class 300-E at B (high) (sf)

All trends on the rake bonds are Stable.

In addition to the B note debt that backs the rake bonds in this transaction, the pooled bonds are also backed by a pari passu portion of the A note debt secured by the same property, a Class A office building known as 300 North LaSalle, located in Chicago. The piece of the loan contributed to the subject transaction (Prospectus ID#2, 14.4% of the current pooled balance) had an issuance balance of $100 million, with the remaining $130.5 million in pari passu debt contributed to the MSBAM 2014-C19 transaction, which is also rated by DBRS Morningstar. The fiscal year for the collateral ends in June and, as of the June 2021 reporting, the servicer reported an occupancy rate of 96.0%, with cash flows generally in line with issuance expectations, supporting the rating confirmations for the rake bonds.

For reference, all statistics referencing a percentage of the pool balance throughout this press release are based on the loans’ percentage of the pooled bond balance, not the transaction balance as a whole.

The rating confirmations generally reflect the stable performance for the transaction since DBRS Morningstar’s last review. DBRS Morningstar does note recent favourable developments for four loans that were previously specially serviced. These include the Ashford Hospitality Portfolio C3 (Prospectus ID#13, 4.0% of the current pooled balance) and Ashford Hospitality Portfolio C2 (Prospectus ID#21, 1.8% of the current pooled balance) loans, which were modified to allow for forbearance agreements and were returned to the master servicer in March 2022. The La Quinta Inn & Suites Medical Center San Antonio (Prospectus ID#27, 1.4% of the current pooled balance) was returned to the master servicer as a corrected loan in November 2021, and The Marketplace at Warsaw (Prospectus ID#36) loan was liquidated at a loss lower than DBRS Morningstar had anticipated.

As of the May 2022 remittance, the pooled portion of the transaction consists of 48 of the original 65 loans, with an aggregate principal balance of $625.3 million, reflecting a collateral reduction of 39.4% since issuance. In addition, eight loans, representing 9.9% of the pool, are fully defeased. The pool is concentrated by property type, with the largest concentration being office properties (approximately 25% of the current pooled balance).

As of the May 2022 reporting, there are three loans, representing 7.7% of the current pooled balance, in special servicing. The largest specially serviced loan, Louisiana Retail Portfolio (Prospectus ID#11, 4.0% of the current pooled balance), is secured by 15 unanchored retail properties in tertiary markets in Louisiana and Mississippi. The loan transferred to special servicing in December 2019 as a result of maturity default and has since become real estate owned (REO). DBRS Morningstar liquidated the loan based on a haircut to the most recent appraised value, resulting in an implied loss severity of 22.2%. The two other specially-serviced loans, Value Place Williston (Prospectus ID#14, 2.8% of the current pooled balance) and Wingate by Wyndham Lake Charles (Prospectus ID#35, 0.9% of the current pooled balance), are also REO and were also liquidated based on recent appraisals in the analysis, with a full loss estimated for the Williston loan and a nominal loss estimated for the Lake Charles loan.

There are 10 loans, representing 36.1% of the current trust, on the servicer’s watchlist. The largest watchlisted loan, Huntington Oaks Shopping Center (Prospectus ID#3, 9.7% of the current pooled balance), is secured by an anchored shopping center in Monrovia, California. The servicer has been monitoring the loan since Toys “R” Us vacated in 2018; however, it has recently been confirmed that Burlington Coat Factory will be taking the space. As of year end (YE) 2021, occupancy was 84.1%, increasing from 75.8% at YE2020.

The third-largest watchlisted loan, 250 Munoz Rivera (Prospectus ID#6, 5.8% of the current pooled balance), is secured by a 326,275 square foot (sf) office property in San Juan, Puerto Rico. The loan has been monitored for occupancy declines and the largest tenant, UBS Financial Services (UBS) (20.6% of the net rentable area (NRA)), a tenant at the subject since 2000, has a lease expiration in November 2022. UBS appears to have exercised termination options in 2016 that reduced its footprint at the property from 28.1% of the NRA at issuance. According to the loan summary provided at issuance, the termination option required a fee of $7.1 million and as of the May 2022 reporting, the servicer showed a tenant reserve balance on the loan of $2.4 million. A leasing update has been requested by DBRS Morningstar and the servicer’s response has not been received as of the date of this press release. As of YE2021, occupancy was 70.4%, decreasing from 80.7% after several tenants left at the respective lease expiration dates. The most recent debt service coverage ratio reported by the servicer, as of YE2021, is healthy at 1.90 times (x); however, this is not fully reflective of revenues lost with the occupancy declines in the last year.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no environmental, social, or governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Classes X-A, X-B, and X-C 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.

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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577