Morningstar DBRS Downgrades Eight Classes of JPMCC 2013-C16

DBRS, Inc. (Morningstar DBRS) downgraded the credit ratings on eight classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C16 issued by JP Morgan Chase Commercial Mortgage Securities Trust 2013-C16 as follows:

-- Class X-B to BB (high) (sf) from AAA (sf)
-- Class B to BB (sf) from AA (high) (sf)
-- Class C to B (sf) from A (high) (sf)
-- Class EC to B (sf) from A (high) (sf)
-- Class D to B (low) (sf) from BBB (low) (sf)
-- Class E to CCC (sf) from BB (sf)
-- Class F to C (sf) from B (high) (sf)
-- Class X-C to C (sf) from BB (low) (sf)

The trends on Classes B, C, D, X-B, and EC were changed to Negative from Stable. Classes E, F, and X-C no longer carry a trend as they are assigned credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

Since the last credit rating action, 40 loans have repaid from the trust, leaving five loans outstanding, all of which are in maturity default and in special servicing. Given the concentration of defaulted loans, Morningstar DBRS’ analysis was based on a liquidation scenario for all five remaining loans. Additionally, none of the outstanding bonds received interest payments with the January 2024 remittance. Morningstar DBRS has very limited tolerance for unpaid interest on high-investment-grade rated bonds, limited to one to two remittance periods for the AA and A credit rating categories, three to four remittance periods for the BBB credit rating category, and six remittance periods for the BB and B credit rating categories. The downgrades to and Negative trends on Classes B, C, D, X-B, and EC reflect Morningstar DBRS’ expectations of timely interest to the bonds relative to the assigned ratings, while the downgrades to Classes E, F, and X-C reflect Morningstar DBRS’ loss expectations upon resolution.

The largest loan remaining in the pool is The Aire (Prospectus ID#1; 49.8% of the pool), which is secured by a high-rise multifamily property in New York’s Upper West Side. While the property offers many high-end amenities and occupancy has historically been strong, the reported debt service coverage ratio (DSCR) has been below 1.0 times (x) for several years, initially as a result of the loan’s tax abatement burning off in 2017 and subsequently as a result of rent reductions and free rent offered to retain occupancy during the pandemic. The loan transferred to special servicing in June 2023 for imminent default, ahead of its November 2023 maturity. Servicer commentary indicates the borrower may be able to fully repay the loan after a short extension, although no modification proposal has been disclosed. The property quality, use, and location are mitigating factors; however, given the decline in DSCR and the loan’s maturity default, Morningstar DBRS is projecting a small loss on this loan, less than 10% of the trust loan balance, based on a stress to the issuance appraised value.

The remaining four loans, representing 50.2% of the pool balance, are backed by office properties located in four distinct markets. Riverview Office Tower (Prospectus ID #15; 7.1% of the pool), which is backed by an office property built in 1973 in Bloomington, Minnesota, was in special servicing at the time of the last rating action. The loan transferred to special servicing in August 2022 and a receiver was appointed in January 2023. An appraisal dated December 2022 valued the property at $16.5 million, a 46.8% decline from the issuance appraised value of $31 million. Morningstar DBRS applied an additional stress of 30% to the December 2022 value as the property’s occupancy rate, reported at 38% as of March 2023, has continued to decline year over year.

Morningstar DBRS’ liquidation analysis for the remaining three loans included stresses to the issuance appraised values ranging from 50% to 60%, as no updated appraisals have yet been received, and considered multiple factors, including the property type, age, submarket conditions, historical performance and upcoming rollover, in determining an expected loss severity. While Morningstar DBRS expects the senior outstanding classes will likely be recovered, the workout and disposition timelines are uncertain and Morningstar DBRS’ ratings are constrained by the expectation of continued unpaid interest prior to repayment.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030.

Classes 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 credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

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://dbrs.morningstar.com/research/410912.

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

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.

Morningstar DBRS did have 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only five remaining loans. In those cases, the Morningstar DBRS ratings are typically based on a recoverability analysis for the remaining loans. Additionally, a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS’ outlooks and credit ratings are monitored.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

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

-- North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/422859
-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023), https://dbrs.morningstar.com/research/420982
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023), https://dbrs.morningstar.com/research/419592
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://dbrs.morningstar.com/research/415687
-- Legal Criteria for U.S. Structured Finance (December 7, 2023),
https://dbrs.morningstar.com/research/425081

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