Morningstar DBRS Downgrades Credit Ratings on Two Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C18 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18 as follows:

-- Class E to CCC (sf) from B (low) (sf)
-- Class F to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (low) (sf)
-- Class D at BB (high) (sf)
-- Class X-A at AAA (sf)
-- Class X-B at BBB (low) (sf)
-- Class PST at A (low) (sf)
-- Class 300-A at AA (high) (sf)
-- Class 300-B at A (sf)
-- Class 300-C at BBB (sf)
-- Class 300-D at BB (sf)
-- Class 300-E at B (high) (sf)

The credit rating on Class A-3 was discontinued as it was repaid with the April 2024 remittance.

Morningstar DBRS changed the trends on Classes D and X-B to Negative from Stable while Classes 300-C through 300-E were assigned Negative trends with the April 15, 2024, credit rating action. All other classes carry Stable trends with the exception of Classes E and F, which are assigned credit ratings that do not typically carry a trend in commercial mortgage-backed securities (CMBS).

The credit rating downgrades reflect Morningstar DBRS' increased loss expectations for the three loans in special servicing (representing 7.7% of the pool), and the Negative trends reflect increased default risk for loans not yet in special servicing as the pool enters its maturity year. As of the April 2024 remittance, 43 of the original 65 loans remain outstanding and the initial pool balance of $1.03 billion has been reduced to $479.0 million, representing 53.6% of collateral reduction since issuance. Realized trust losses total $19.6 million and have eroded the balance of the unrated Class G certificate by nearly 65%. All of the remaining loans are scheduled to mature by YE2024. For the three loans in special servicing, which represent 7.7% of the pool balance, Morningstar DBRS' analysis included liquidation scenarios based on various stresses to the most recent appraised value, resulting in an aggregate loss forecast of $25.5 million. While Morningstar DBRS expects the majority of non-specially serviced loans will repay at maturity based on the pool's weighted-average debt service coverage ratio (DSCR) that is above 1.90 times (x), Morningstar DBRS has identified several loans, representing about 35.0% of the pool balance, to be at increased risk of default given performance challenges, property type, and/or general market concerns. For these loans, Morningstar DBRS used stressed loan-to-value ratios (LTVs) and/or elevated probability of defaults (PODs) to increase the expected loss as applicable.

The largest loan in special servicing is 25 Taylor (Prospectus ID#16, 3.6% of the pool). The collateral is an office property located in San Francisco's Theater District. The building was previously fully occupied by WeWork on a lease through August 2027; however, the tenant vacated in 2021. The loan transferred to special servicing in February 2023, which the special servicing is currently pursuing foreclosure while a receiver was recently appointed. Since the last credit rating action, an appraisal was conducted. The resulting value, dated October 2023, was $8.7 million, down from the issuance appraised value of $28.1 million. Morningstar DBRS' liquidation analysis is based on a stress to the most recent appraised value given the softening submarket performance, lack of leasing activity and general lack of liquidity for this property type. The resulting projected loss severity exceeds 75%.

The largest loan in the pool is 300 North LaSalle (Prospectus ID#2, 17.2% of the pool), which is secured by a 1.3 million-square-foot (sf) Class A office building in Chicago's River North submarket. There is $82.5 million in senior debt held in the pooled trust, and a $107.8 million pari passu portion is secured in Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19 (MSBAM 2014-C19), which is also rated by Morningstar DBRS. Additionally, $244.4 million in subordinate debt backs the rake bonds offered in this transaction. To read more on Morningstar DBRS' recent rating action on these rake bonds, please see the press release titled "Morningstar DBRS Takes Rating Actions on North American Single-Asset/Single-Borrower Transactions Backed by Office Properties," published on April 15, 2024, on the Morningstar DBRS website.

The subject, originally built in 2009, is considered well-positioned relative to its submarket competitors given its riverfront location, property quality, extensive amenity package, and experienced sponsorship in Irvine Company. The loan has historically exhibited stable performance and reported a March 2023 occupancy of 93.5%. However, the loan is scheduled to mature in August 2024 and leases representing 27.5% of the net rentable area (NRA) are scheduled to expire by year-end, including the second-largest tenant Boston Consulting Group (BCG; 12.2% of the NRA). BCG's lease is scheduled to expire in December 2024, and the tenant will vacate and relocate to another property in Chicago's Fulton Market neighborhood. The sponsor has announced that replacement tenant Winston & Strawn will backfill all of BCG's former space, although lease terms are not known at this time. Additionally, the largest tenant, Kirkland & Ellis (51.5% of the NRA, lease expiry in February 2029), will reportedly execute its termination option in February 2025 to accommodate the firm's plans to relocate to the newly constructed Salesforce Tower Chicago. In exchange, the tenant is required to pay a termination fee of $51.2 million, which has already been posted in the form of a letter of credit. As another sign of the sponsor's commitment to the property, a $30 million capital improvement project was announced in 2023. Although the submarket performance has weakened considerably since issuance, and the loan's upcoming maturity is a noted concern with the possibility of a maturity extension in the near-term, the subject is better positioned than most Chicago office properties that have reported performance declines in the last few years In its analysis, Morningstar DBRS updated the senior debt LTV to reflect the Morningstar DBRS value of the property as concluded with the April 15, 2024, credit rating action, as well as a stressed POD considering the tenant rollover risk and near-term maturity. This results in an expected loss that was more than double that of the base level loan expected loss. In addition, Morningstar DBRS had assigned Negative trends on Classes 300-C, 300-D, and 300-E with the April 15, 2024, credit rating action given the position of the subordinate B-Note in the capital stack, as well as rollover and maturity concerns as previously noted. The Negative trends were maintained with this review.

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

Classes X-A and X-B 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 North American CMBS Surveillance Methodology (March 1, 2024; https://dbrs.morningstar.com/research/428798)

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. 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 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 (March 1, 2024)/North American CMBS Insight Model v 1.2.0.0, https://dbrs.morningstar.com/research/428797

-- Rating North American CMBS Interest-Only Certificates (December 13, 2023), https://dbrs.morningstar.com/research/425261

--North American Single-Asset/Single-Borrower Ratings Methodology (March 1, 2024), https://dbrs.morningstar.com/research/428799

-- 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

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

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 (July 17, 2023).

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