DBRS Morningstar Confirms Ratings on All Classes of WFRBS Commercial Mortgage Trust 2014-LC14

DBRS Limited (DBRS Morningstar) confirmed the ratings on all classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-LC14 issued by WFRBS Commercial Mortgage Trust 2014-LC14 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 X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-B at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class X-C at B (high) (sf)
-- Class F at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction, which continues to perform in line with DBRS Morningstar’s expectations since last review.

As of the April 2023 remittance, 54 of the original 71 loans remain in the pool, representing a collateral reduction of 38.5% since issuance with a current trust balance of approximately $772.1 million. Defeasance collateral represents 28.0% of the current pool balance. Four loans are in special servicing and six loans are on the servicer’s watchlist, representing 10.0% and 15.7% of the pool, respectively. Three of the watchlisted loans are being monitored for low occupancy rates and/or debt service coverage ratios (DSCRs). With this review, DBRS Morningstar analyzed these loans with a stressed scenario given the performance decline and near-term maturity dates.

The transaction has an office concentration of approximately 20.0%, which includes the largest specially serviced loan, Williams Center Towers (Prospectus ID#6, 5.3% of the pool). Loans backed by office properties were generally stressed given the proximity to maturity and general stress on the office sector in the current environment, with the weighted-average expected loss for those loans approximately 75.0% more than the expected loss for the pool as a whole. The Williams Center Towers loan is secured by a Class A office complex, totaling approximately 765,809 square feet (sf) of space, located in the in the Central Business District (CBD) of Tulsa, Oklahoma. The loan was transferred to special servicing in April 2018 after a large tenant, Samson Investment Company, filed for bankruptcy and vacated the property, causing occupancy to decline to 78.0%. Occupancy further declined after the departure of Bank of Oklahoma (11.1% of the net rentable area (NRA)) in December 2019, with the September 2022 rent roll reporting an occupancy rate of 70.3%. Per Reis, office properties located in the in the greater Tulsa CBD submarket reported a YE2022 vacancy rate of 13.3%, compared with the YE2021 vacancy rate of 14.4%. Although the overall vacancy rate is relatively low, DBRS Morningstar expects the actual physical occupancy rate of leased buildings in the Tulsa CBD could be much lower given low vehicle and foot traffic noted in the area during a recent weekday visit to the area by a DBRS Morningstar analyst.

According to the trailing six months (T-6) ended June 30, 2022, financials, the loan reported an annualized DSCR of 0.87 times (x), compared with the YE2021 DSCR of 0.87x and the DBRS Morningstar DSCR of 1.19x. Despite reporting less than a 1.0x DSCR in the last several years, the loan has remained current, with cash flow shortfalls funded by the borrower. However, given the sustained low performance and the lack of meaningful leasing traction following the loss of two large tenants, the value has likely declined significantly from issuance, a factor that will significantly impede refinance efforts at maturity next year. As such, DBRS Morningstar applied a stressed loan-to-value (LTV) and elevated the probability of default (POD) in the analysis for this loan.

The largest loan on the servicer's watchlist is Canadian Pacific Plaza (Prospectus ID#8, 4.6% of the pool), which is secured by a Class B+ office property located in the Minneapolis CBD. The loan has been on the servicer’s watchlist since July 2020 because of a significant drop in occupancy, which fell to 63.0% at YE2020. This was primarily because of the departure of Nilan Johnson Lewis PA (19.6% of NRA) in February 2020. As of the September 2022 rent roll, occupancy remains depressed at 60.3%. According to Reis, office properties located in the Minneapolis CBD submarket reported a YE2022 vacancy rate of 22.8%, compared with the YE2021 vacancy rate of 18.8%. Based on the T-9 ended September 30, 2022, financials, the DSCR was reported at 0.65x, compared with the YE2021 DSCR of 0.69x and DBRS Morningstar DSCR of 1.28x. Given the significantly depressed performance and soft submarket, the value for this office building has also likely declined sharply from issuance. DBRS Morningstar applied a stressed LTV and a POD penalty in the analysis for this review.

Although the risks for these loans are significantly elevated, the large unrated first loss Class G certificate balance of just more than $44.0 million and the below investment-grade-rated Classes E and F with a combined balance of $34.5 million provide significant cushion for the bonds higher in the stack should the loans ultimately be liquidated with a loss to the trust. The stressed scenarios analyzed for each resulted in expected loss amounts that were between approximately 150% and 200% of the average expected loss for the pool as a whole.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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 (May 17, 2022).

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.

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

The principal methodology is the North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

North American CMBS Multi-Borrower Rating Methodology/North American CMBS Insight Model v 1.1.0.0 (March 16, 2023) https://www.dbrsmorningstar.com/research/410913

Rating North American CMBS Interest-Only Certificates (December 19, 2022)
https://www.dbrsmorningstar.com/research/407577

Legal Criteria for U.S. Structured Finance (December 7, 2022)
https://www.dbrsmorningstar.com/research/407008

DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 12, 2022)
https://www.dbrsmorningstar.com/research/402646

North American Commercial Mortgage Servicer Rankings (September 8, 2022)
https://www.dbrsmorningstar.com/research/402499

Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022)
https://www.dbrsmorningstar.com/research/402153

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