Morningstar DBRS Downgrades and Discontinues Credit Rating on BWAY 2015-1740 Mortgage Trust

DBRS Limited (Morningstar DBRS) downgraded one credit rating on the Commercial Mortgage Pass-Through Certificate, Series 2015-1740 issued by BWAY 2015-1740 Mortgage Trust as follows:

-- Class A to D (sf) from C (sf)

Morningstar DBRS simultaneously discontinued and withdrew its credit rating on Class A.

Morningstar DBRS had rated only the $157.5 million Class A certificate in this transaction, which had an original deal balance of $308.0 million. The credit rating downgrade reflects the realized losses to the trust that were reflected in the May 2024 remittance following the liquidation of the sole asset backing the transaction. The loan was liquidated from the trust at a loss of approximately $190.8 million of which $40.2 million was allocated to the Class A certificate. The proceeds from the liquidation were applied to the outstanding servicer advances of $48.4 million and nonrecoverable interest of $9.9 million following which net proceeds of only $117.2 million became available to the trust, resulting in a 26% writedown of Class A. In November 2023, Morningstar DBRS had downgraded the Class A certificate to C (sf), indicating the likelihood of significant expected losses at disposition of the asset. To read more on Morningstar DBRS' previous credit rating action, please see the press release titled "DBRS Morningstar Downgrades Credit Rating on BWAY 2015-1740 Mortgage Trust" published on November 1, 2023, on the Morningstar DBRS website.

The loan was secured by a 26-story office and retail tower at 1740 Broadway in Manhattan, New York, with a scheduled maturity date in January 2025. The loan sponsor is Blackstone Property Partners, L.P. (Blackstone). The property was originally constructed in 1950 and underwent a $33.3 million renovation in 2020. The loan transferred to special servicing in April 2022 after L Brands (70.9% of the net rentable area) vacated the space upon its lease expiration in March 2022. The transaction did not contemplate any provisions that would have allowed for cash to be trapped during the lease expiration of L Brands, a structural weakness that Morningstar DBRS cited at issuance. As such, the sponsor retained all excess cash flow for two years when the loan's debt service coverage ratio was 1.87 times (x) for YE2020 and 1.42x for YE2021. Once L Brands vacated in 2022, cash management was triggered, but by that time, there was no excess cash to trap. Blackstone was actively engaged in workout discussions during the initial forbearance period. However, by the end of the extended forbearance period in December 2022, the servicer noted that Blackstone was no longer willing to fund shortfalls and was looking to market the property for sale.

Although the forbearance expired in December 2022, the first appraisal reduction amount (ARA) of $77.5 million was not reported until June 2023. Following multiple changes to the assigned special servicer, an updated appraised value was eventually reported with the August 2023 remittance. That appraisal, dated July 2023, valued the property at $175.0 million, representing a 71.0% decline to the issuance appraised value of $605.0 million. Consequently, the ARA increased to $187.6 million, resulting in the master servicer's non-recoverability determination in the same month. The non-recoverability determination triggered the shorting of interest payments to all bonds across the capital stack.

With the May 2024 remittance, the loan was liquidated via a note sale of $185.0 million. Given the priority of recoverability, liquidation proceeds first went to recoup servicing fees and outstanding advances of $49.4 million in addition to the accrued interest shortfalls of $9.9 million and other expenses of approximately $2.9 million, ultimately resulting in $117.2 million in distributable principal. This equated to a loan level loss severity of 62%.

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 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 note a sensitivity analysis is not performed for discontinued bonds.

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

-- 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 (April 15, 2024), https://dbrs.morningstar.com/research/431205

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].