DBRS Morningstar Downgrades Credit Ratings on Five Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11

DBRS Limited (DBRS Morningstar) downgraded its credit ratings on five classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C11 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11 as follows:

-- Class C to D (sf) from C (sf)
-- Class D to D (sf) from C (sf)
-- Class E to D (sf) from C (sf)
-- Class F to D (sf) from C (sf)
-- Class PST to D (sf) from C (sf)

DBRS Morningstar simultaneously discontinued and withdrew its credit ratings on Classes C, D, E, F, and PST.

Additionally, DBRS Morningstar confirmed its credit ratings on the following classes:

-- Class A-S at BBB (high) (sf)
-- Class B at C (sf)

DBRS Morningstar also discontinued its credit ratings on Classes A-4 and X-A as they have been repaid in full. The trend on Class A-S is Stable, and Class B has a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating downgrade on Classes C, D, E, F, and PST follow realized losses to the trust that were reflected with the October 2023 remittance. The Mall at Tuttle Crossing (Prospectus ID#2), previously 32.3% of the pool, was liquidated from the trust at a loss of approximately $70.4 million, which was slightly higher than DBRS Morningstar’s projected loss. Prior to this credit rating action, these five bonds carried DBRS Morningstar credit ratings of C (sf), indicating significant expected losses at disposition of the asset. The remaining credit rating confirmations reflect DBRS Morningstar’s expectations for the three remaining loans in the pool, which are all in special servicing. As of the November 2023 remittance, there has been a collateral reduction of approximately 85.1% with a total reported $115.8 million in realized losses.

The largest loan remaining, Westfield Countryside (Prospectus ID#1, 70.1% of the current pool), is the primary driver of DBRS Morningstar’s expected losses. The loan is secured by 464,398 square feet (sf) of a 1.3 million-sf regional mall in Clearwater, Florida. The loan transferred to special servicing in June 2020 for imminent default and a receiver was appointed in January 2021. The sponsor, Unibail-Rodamco-Westfield, is reportedly cooperating in a friendly foreclosure and, according to investor reporting, the special servicer is marketing the asset for sale. An October 2023 appraisal valued the subject at $116.0 million, marking an increase from the September 2022 appraised value of $108.0 million and the August 2020 appraised value of $91.5 million but well below the issuance appraised value of $270.0 million.

The mall’s non collateral anchors are Nordstrom Rack, Macy’s, Dillard’s and JCPenney. A fifth anchor pad previously occupied by Sears, which closed in 2018, has been partially backfilled by Whole Foods. The YE2022 reported net cash flow (NCF) and debt service coverage ratio (DSCR) were $8.6 million and 0.98 times (x), respectively, a slight decrease from the YE2021 figures of $8.8 million and 1.01x, respectively. In-line occupancy has declined through the first three quarters of 2023, falling to 68.1% in September 2023 compared with 89.5% in YE2022. Leases representing 10.5% of the net rentable area are scheduled to expire in the next 12 months, indicating the potential for further declines in cash flow and occupancy. According to the August 2023 sales report, in-line tenants reported average sales of $344 per square foot (psf) for the trailing 12-month (T-12) period compared with $244 psf for the T-12 period ended June 2021.

Two other loans are in special servicing, having defaulted at maturity. Bridgewater Campus (Prospectus ID#6, 28.8% of the current pool) is secured by eight Class B mixed-use office buildings in Bridgewater, New Jersey. The loan was transferred to special servicing in June 2023. According to the special servicer, the borrower has requested a loan extension. As of September 2023, the property was 83.4% occupied by three tenants, none of which have lease expirations in the near to medium term. The YE2022 NCF and DSCR were reported at $4.5 million and 1.7x, respectively. An updated appraised value was received in September 2023, valuing the property at $46.0 million compared with $63.5 million at issuance, representing a 27.6% reduction in value. Similar to the approach for Westfield Countryside, DBRS Morningstar’s analysis considered various liquidation scenarios based on a range of stresses to the most recent appraised value for Bridgewater Campus.

Walgreens-McAllen Texas (Prospectus ID#38, 1.1% of the current pool) is backed by a single-tenant retail property originally leased to Walgreens. Walgreens vacated in 2017 but the property was re-tenanted by Dollar Tree on a sublease through April 2035. The special servicer has noted that the borrower is working to pay off the loan in full but is dual-tracking foreclosure and has ordered an appraisal.

Given the status of the remaining assets, uncertain disposition and workout timelines, and the continued underperformance of the largest loan, DBRS Morningstar tested different liquidation scenarios based on stresses to the most recent appraised values to determine the recoverability of the remaining bonds. DBRS Morningstar determined that the nearly 72% credit support available to the Class A-S bond supports its credit rating confirmation at BBB (high) (sf). The credit rating remains constrained given the pool concentration and exposure to defaulted assets, as well as increased propensity to interest shortfalls. Should these loans wallow in special servicing, incurring trust expenses, and/or decline significantly in value beyond DBRS Morningstar’s expectations, DBRS Morningstar may consider downgrading the credit rating.

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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit 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 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 credit rating was initiated at the request of the rated entity.

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

This is a solicited credit rating.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is in wind-down, with only a few loans remaining. In those cases, the DBRS Morningstar credit ratings are typically based on a recoverability analysis for the remaining loans.

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The credit 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 (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0 (https://www.dbrsmorningstar.com/research/422859)

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

-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)

-- North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

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

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/417279.

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