Morningstar DBRS Changes Trends to Negative for WFRBS 2014-LC14

DBRS, Inc. (Morningstar DBRS) confirmed its ratings on all classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC14 issued by WFRBS Commercial Mortgage Trust 2014-LC14 as follows:

-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)
-- Class X-B at BBB (sf)
-- Class X-C at B (high) (sf)

As part of the credit rating action, all trends were changed to Negative from Stable.

The Negative trends reflect the pool's increasing concentration and high exposure to defaulted assets. Since Morningstar DBRS' last credit rating action, 46 loans have repaid or liquidated from the trust, leaving eight outstanding as of the March 2024 remittance. Six of the eight remaining loans are in special servicing, representing 68.5% of the pool, including three loans that have transferred to the special servicer since the April 2023 surveillance review of this transaction. To test the durability of the ratings, Morningstar DBRS' analysis for this review considered a liquidation scenario for all of the specially serviced loans based on various stresses to the most recent appraised values. Morningstar DBRS concluded that although losses are expected to be contained to the unrated Class G certificate, and projected proceeds from loans in special servicing will likely be sufficient to recover the Class D certificate balance, the concentration of defaulted assets, increased default risk for loans that are not in special servicing, and increased propensity for interest shortfalls limit the potential for future upgrades.

The largest loan is Williams Center Towers (Prospectus ID#6, 30.9% of the pool), which is secured by an 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 declined again following 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%. As of the June 2023 servicer reporting, occupancy declined further to 61%. Per Reis, Inc., office vacancy in the Tulsa CBD submarket increased to 22.1% as of YE2023 from 18.3% as of YE2022 and 14.7% as of YE2021. The reported debt service coverage ratio (DSCR) as of the June 2023 financial statement was 0.91 times (x), compared with the YE2022 DSCR of 0.90x and the Morningstar DBRS DSCR of 1.19x.

The loan was scheduled to mature in February 2024 and the borrower has not remitted debt service payments for February or March 2024, as of the most recent reporting. The servicer commentary indicates the borrower has requested a maturity extension. 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 even in the event of an extension. Morningstar DBRS' liquidation analysis for this loan is based on a conservative stress to the issuance appraised value, as an updated appraisal has not yet been made available, resulting in a projected loss severity approaching 50%.

The second-largest loan is Canadian Pacific Plaza (Prospectus ID#6, 26.6% of the pool). The collateral is a 26-story, 394,000-sf Class B office property in the Minneapolis CBD. The loan has been on the servicer's watchlist since July 2020 because of a significant drop in occupancy. A previous major tenant, Nilan Johnson Lewis PA (formerly 19.6% of NRA) vacated in February 2020, driving occupancy down to 63.0% by YE2020. As of the September 2023 reporting, occupancy has declined further to 57.0%. The DSCR has declined to 0.04x from 0.54x at YE2022 and 0.69x at YE2021. According to Reis, office vacancy in the Minneapolis CBD was 24.1% as of YE2023, up from 22.8% at YE2022 and 18.8% at YE2021.

The loan had an anticipated repayment date of November 2023 and is now scheduled to hyperamortize through November 2028. According to the servicer's commentary, the loan is in cash management but remains current on payments despite the lack of excess cash flow implied by the reported DSCR, suggesting the borrower continues to fund out of pocket. The loan's continued deleveraging helps mitigate some of the above-noted concerns, as the current loan-to-value ratio (LTV) is 65.1% based on the issuance appraised value, down from the issuance LTV of 74.3%. However, given the significantly depressed performance and soft submarket, Morningstar DBRS expects the value for this office building has declined since issuance. The increased default risk for this loan contributed to the Negative trends placed on all classes.

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 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.

Classes X-B and X-C are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO credit 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 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 North American CMBS Surveillance Methodology, (March 1, 2024), https://dbrs.morningstar.com/research/428798, which can be found on dbrs.morningstar.com under Methodologies & Criteria.

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 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.

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

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 (March 1, 2024)/North American CMBS Insight Model version 1.2.0.0, https://dbrs.morningstar.com/research/428797

--DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria, (September 22, 2023),
https://dbrs.morningstar.com/research/420982/dbrs-morningstar-north-american-commercial-real-estate-property-analysis-criteria

--North American Commercial Mortgage Servicer Rankings, (August 23, 2023),
https://dbrs.morningstar.com/research/419592/north-american-commercial-mortgage-servicer-rankings

--Interest Rate Stresses for U.S. Structured Finance Transactions, (February 26, 2024),
https://dbrs.morningstar.com/research/428623/interest-rate-stresses-for-us-structured-finance-transactions

--Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, (January 23, 2024), https://dbrs.morningstar.com/research/427030

--Rating North American CMBS Interest-Only Certificates, (December 13, 2023),
https://dbrs.morningstar.com/research/425261/rating-north-american-cmbs-interest-only-certificates

--Legal Criteria for U.S. Structured Finance, (December 7, 2023),
https://dbrs.morningstar.com/research/425081/legal-criteria-for-us-structured-finance

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