Morningstar DBRS Confirms All Credit Ratings on Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-C20 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C20 as follows:

-- Class A-SB at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AA (high) (sf)
-- Class B at AA (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class X-D at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class X-E at B (sf)
-- Class E at B (low) (sf)
-- Class F at CCC (sf)

All trends are Stable, with the exception of Class F, which is assigned a credit rating that does not typically carry a trend in commercial mortgage-backed securities (CMBS) credit ratings.

The credit rating confirmations reflect the stable performance of the transaction, which remains in line with Morningstar DBRS' expectations. Overall, the pool continues to exhibit healthy credit metrics, as evidenced by the weighted-average (WA) debt service coverage ratio (DSCR) of almost 2.0 times (x); based on the most recent financial reporting available. Although there is a high concentration of loans secured by office properties, which represent 25.8% of the current pool balance, the majority of those loans continue to perform as expected, with the underlying collateral demonstrating stable to improving operating performance over the last few reporting periods, including the largest loan in the pool, Discovery Business Center (Prospectus ID#1; 12.9% of the pool). In addition, the transaction, as a whole, continues to benefit from increased credit support to the bonds as a result of scheduled amortization, loan repayments, and defeasance, further supporting the credit rating confirmations and Stable trends assigned with this review.

As of the April 2024 remittance, 70 of the original 88 loans remain in the pool, with a trust balance of $784.1 million, representing collateral reduction of 31.7% since issuance. To date, the trust has incurred approximately $9.0 million of losses, which have been contained to the nonrated Class G certificate. Thirteen loans, representing 19.1% of the pool balance, are on the servicer's watchlist; however only eight of those loans, representing 15.0% of the pool balance, are being monitored for credit-related reasons. In addition, five loans, representing 7.6% of the pool balance, are in special servicing and 19 loans, representing 19.2% of the pool balance, are fully defeased. With this review, Morningstar DBRS considered a liquidation scenario for one specially serviced loan, 33 West 46th Street (Prospectus ID#12; 2.2% of the pool), details of which are described below. Morningstar DBRS stressed the remaining four specially serviced loans with an elevated probability of default (POD) penalty and/or loan-to-value ratio (LTV) to reflect increased refinance risk, given the loans' near-term maturity dates between September 2024 and February 2025.

The 33 West 46th Street loan is secured by a 42,525-square-foot (sf) office property in Midtown Manhattan, New York. The loan transferred to special servicing in August 2020 for payment default, with the last payment received in January 2023. A receiver was appointed in March 2022, and a foreclosure auction is scheduled to take place during Q2 2024. Operating performance at the property has consistently declined since issuance with the loan's DSCR remaining well below break-even since YE2021. The property was approximately 57.0% occupied as of September 2023 with the top three tenants, Teamamerica & Volatour, Inc. (lease expiration in November 2027), Dana Saltzman MD (lease expiration in March 2038) and Lifespan Pilates LLC (lease expiration in April 2032) occupying more than 35.0% of the net rentable area (NRA). The remainder of the rent roll is relatively granular, with no other tenant occupying more than 6.0% of the NRA. In addition, lease rollover at the property is moderate, with two leases, representing approximately 11.0% of the NRA, scheduled to roll within the next 12 months. The January 2023 appraised value of $18.3 million, was below the May 2022, and issuance appraised values of $22.1 million and $26.0 million, respectively. In the analysis for this review, Morningstar DBRS maintained a conservative approach and applied a haircut to the most recent appraisal value, resulting in a loss severity in excess of 50.0%.

The largest loan on the servicer's watchlist, Orlando Maitland Office Portfolio (Prospectus ID#2; 10.7% of the pool), is secured by four Class A office buildings totaling 588,678 sf in Maitland, Florida, located eight miles north of Orlando's central business district. The buildings, referred to as Summit Tower, Summit Park I, Summit Park II, and Summit Park III, were constructed between 1992 and 2009. The two oldest buildings, Summit Park I and Summit Park II, were renovated between 2009 and 2013. Electronic Arts (EA), which formerly occupied 22.0% of the portfolio's NRA (128,240 sf) and 100% of the NRA at Summit Park I, exercised an early termination option in November 2021, ahead of its October 2025 lease expiration date, after Orlando's city council approved an agreement to move EA from its Maitland headquarters to Orlando's Creative Village area in the downtown core. EA paid a termination fee of $1.9 million and a cash flow sweep was initiated. In addition, FedEx Corporate Services, Inc. (FedEx) (37,940 sf; 6.45% of total NRA with a lease expiration in April 2024), who is currently located at the Summit Tower property, failed to renew its lease prior to the October 2023 deadline, which is also considered a trigger event for the loan. Another tenant located at the Summit Tower property, Staples Contract & Commercial LLC (Staples) 57,818 sf; 9.82% of total NRA) also has a near term lease expiration in May 2024. These two tenants collectively represent 80.0% of the NRA at that building, suggesting the current occupancy rate of nearly 100.0% could decrease drastically should those tenants fail to renew their leases. Morningstar DBRS has reached out to the servicer for leasing updates.

According to the September 2023 rent roll, the portfolio was 85.5% occupied. The former EA space has been partially backfilled with one tenant, ThreatLocker, Inc., which occupies 44,246 sf of space at the Summit Park I building. The remaining three properties reported occupancy rates nearing 100.0%. Despite the significant tenant rollover risk at the Summit Tower property, a mitigating factor is the loan structure as the borrower is no longer entitled to any disbursement of excess cash reserve funds during the remaining term of the loan considering two trigger events have occurred. In addition, the borrower is obligated to pay excess cash to lender on each payment date until the outstanding debt is paid in full. Tenancy across the portfolio is concentrated, with less than 10 tenants constituting the tenant base and the top three tenants making up approximately 77.0% of the total NRA. Based on the financial reporting for the trailing-nine-month period ended September 30, 2023, the annualized NCF was $8.2 million, a considerable improvement from the YE2022 figure of $5.1 million and relatively in line with the YE2021 figure of $8.1 million. However, if FedEx and Staples do not renew their respective leases, Morningstar DBRS estimates the loan's DSCR could fall below breakeven.

According to Reis, Class A office properties in the Maitland submarket reported a YE2023 vacancy rate of 18.7%, slightly above the YE2022 figure of 16.7%. As of the April 2024 loan-level reserve report, $5.3 million is currently held across all reserves including $1.3 million in replacement reserves and $3.6 million in leasing reserves. Given the portfolio's recent volatility in occupancy and cash flow, coupled with soft submarket conditions, Morningstar DBRS estimates the collateral's as-is value has likely declined from issuance, thereby elevating the refinance risk. Morningstar DBRS analyzed the loan with an elevated POD penalty and stressed LTV ratio, resulting in an expected loss that was almost triple the pool average.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental/Social/Governance factor(s) 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, X-B, X-D, and X-E 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 credit rating assigned to Class E materially deviates from the credit rating implied by the predictive model. Morningstar DBRS typically expects there to be a substantial likelihood that a reasonable investor or other user of the credit rating would consider a three-notch or more deviation from the credit rating stress(es) implied by the predictive model to be a significant factor in evaluating the credit rating. The rationale for the material deviation is uncertain loan-level event risk specifically tied to the specially serviced loans, as well as loans exhibiting increased refinance risk as the pool begins to mature in Q3 2024.

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.

DBRS Limited
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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
-- 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.

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