Morningstar DBRS Downgrades Credit Rating on Four Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2013-C9

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2013-C9 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2013-C9, as follows:

-- Class B to BBB (sf) from AA (high) (sf)
-- Class C to CCC (sf) from BB (sf)
-- Class X-B to CCC (sf) from BB (high) (sf)
-- Class PST to CCC (sf) from BB (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class D at CCC (sf)
-- Class E at CCC (sf)
-- Class F at CCC (sf)
-- Class G at C (sf)
-- Class H at C (sf)

The Negative trend on Class B was maintained with this review while all remaining classes now have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings.

The Class C certificate has not received full interest since May 2023. The credit rating downgrade on Class C, the referenced notional X-B bond, and the exchangeable Class PST is primarily a result of the shorting of interest related to the largest loan in the pool, Milford Plaza Fee (Prospectus ID#1, 72% of the current pool balance). The credit rating downgrade on Class B and the Negative trend reflect the increased likelihood that the class will be shorted interest in the near to medium term, given the accumulating shortfalls, in addition to the deteriorating credit view of the Milford Plaza Fee loan. Morningstar DBRS has limited tolerance for unpaid interest on investment-grade rated bonds, limited to three to four remittance periods for the BBB credit rating category. For the BB and B credit rating categories, Morningstar DBRS has a tolerance of six remittance periods. The recovery of most of the outstanding principal bond balance is reliant upon proceeds from the eventual liquidation of the Milford Plaza Fee loan. There are two additional loans remaining, both of which are current, with an aggregate balance of $63.9 million as of the January 2024 remittance; however, they are not scheduled to mature until 2032 and 2033.

As of the most recent remittance, unpaid certificate interest totalled $6.5 million, which has increased from $3.9 million at the last review in September 2023. For further detail and clarification on the previous credit rating downgrades for this transaction and non-recoverability determination for the Milford Plaza Fee loan please refer to the September 15, 2023 Press Release.

As of the January 2024 remittance, only three of the original 60 loans remain in the pool. The initial pool balance of $1.28 billion has been reduced by 82.1%, to $228.7 million, which includes $18.5 million in realized losses to date. Since the transaction’s last rating action in September 2023, the Darthmouth Mall (Prospectus ID#4) successfully repaid from the trust as anticipated.

The Milford Plaza Fee loan is secured by the borrower’s leased fee interest in the ground beneath the 1,331-key hotel most recently known as Row NYC (and formerly known as the Milford Plaza Hotel) in the Times Square-Theatre District in New York City. The $275 million whole loan, which has a pari passu structure with pieces contributed to the subject transaction ($165 million) and also to the non-Morningstar DBRS-rated MSBAM 2013-C10 transaction ($110 million), has been in special servicing since June 2020 when it became 60 days delinquent. At the time of the loan’s transfer to special servicing, it was noted that the ground rent payments were no longer being made by the leasehold owner, a joint venture between Highgate Holdings and Rockpoint Group. The sponsors for the subject loan are David Werner and the Los Angeles County Employees Retirement Association, which own 25% and 75% of the borrowing entity, respectively. The ground lease runs through February 2112, showing an annual ground lease payment of $18.4 million due in 2023, according to the September 2023 rent roll.

The hotel was initially closed in the very early stages of the Coronavirus Disease (COVID-19) pandemic, but was subsequently contracted by NYC Health + Hospitals (NYCHH), which has housed migrants in some or all of the hotel rooms since the spring of 2020. Most recently, NYCHH confirmed in its March 2023 Report to the Board of Directors that the contract with the subject property had been renewed for a 12-month term. The contract rate is not disclosed in NYCHH’s report, but prior news reports have noted the contract was in place at a rate of $190 per night per room. For reference, the hotel last reported an average daily rate (ADR) of $169 in 2019, down from an ADR of $190 in 2013 when the subject loan closed.

At issuance, the subject collateral was valued at $386 million. Following the loan’s transfer to special servicing, the first appraisal obtained valued the collateral at $378 million. The July 2021 appraisal showed an as-is value estimate of $324 million, which then increased to $365 million as of June 2022 and most recently to $375 million as of May 2023. The special servicer continues to report ongoing efforts to pursue legal remedies while maintaining negotiations with both the subject borrower and the leasehold owner regarding the resolution strategy. Morningstar DBRS continues to use a liquidation scenario its analysis for this loan, resulting in a projected loss severity nearing 30%, based on a stress applied to the most recent appraised value.

Apthorp Retail Condominium (Prospectus ID #5, 22.7% of the pool) is secured by the fee interest in the retail component of The Apthorp, a 12-story, 161-unit luxury residential condominium in Manhattan with an initial maturity date in March 2033. This loan has been on the servicer’s watchlist since January 2019 because of the low debt service coverage ratio (DSCR) and muted occupancy rate. Although performance has been below issuance expectations the loan does remain current. According to the financials for the trailing nine-month period ended September 30, 2023, the subject reported a DSCR of 0.81x, which has increased from 0.69x at YE2022 while occupancy also increased to 82.4% from 74.6% during this period. A new tenant took up occupancy in July 2023 with rents commencing in November 2023, which will help the subject’s cash flow performance into 2024 reporting. According to the September 2023 rent roll, there is no rollover concentration over the next 12 months.

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 at (January 23, 2024; https://dbrs.morningstar.com/research/427030)

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 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.

Morningstar DBRS 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is winding down, with only a few loans remaining. In such cases, the Morningstar DBRS credit ratings are typically based on a recoverability analysis for the remaining loans. Additionally, please note 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 a 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 Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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)

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)

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)

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

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