Morningstar DBRS Downgrades Credit Ratings on Two Classes of WFRBS Commercial Mortgage Trust 2014-C25, Changes Trends on Six Classes to Negative from Stable

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C25 issued by WFRBS Commercial Mortgage Trust 2014-C25 as follows:

-- Class F to CCC (sf) from B (sf)
-- Class X-D to CCC (sf) from B (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class D at BBB (sf)
-- Class E at BB (sf)
-- Class X-A at AAA (sf)
-- Class X-B at BBB (high) (sf)
-- Class X-C at BB (high) (sf)
-- Class PEX at AA (sf)

The credit rating on Class A-SB was discontinued with this review as the class balance repaid with the September 2024 remittance report. Morningstar DBRS changed the trends on Classes C, D, E, X-B, X-C, and PEX to Negative from Stable. There are no trends on Classes F and X-D, which have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings. The trends on all other classes are Stable.

The credit rating actions reflect Morningstar DBRS' increased concerns about the pool, driven by the August 2024 transfer of the largest loan, Colorado Mills (Prospectus ID#2; 19.8% of the current pool balance), to special servicing ahead of the loan's scheduled November 2024 maturity. The rating downgrades and Negative trends also reflect the increased propensity for additional defaults and adverse selection as the pool enters its maturity year. All of the remaining loans in the pool are scheduled to mature by YE2024. While Morningstar DBRS expects the majority will repay from the pool, four loans, not including Colorado Mills and representing 12.3% of the pool balance, have been identified by Morningstar DBRS to be at risk for maturity default. Where applicable, Morningstar DBRS increased the probability of default (POD) penalty and/or stressed loan-to-value ratio (LTV) adjustments for loans exhibiting increased default risk. The resulting weighted-average (WA) expected loss (EL) for these loans is more than three times the pool average. Morningstar DBRS notes the credit deterioration and increased default risk in the pool, mainly attributable to the loans noted above, results in additional negative pressure to the junior bonds in the capital stack. Should these loans default as they near their respective maturity dates, Morningstar DBRS' loss projections may increase, which could result in further credit rating downgrades.

Colorado Mills is secured by a 918,448-square-foot (sf) regional outlet mall in Lakewood, Colorado, and sponsored by Simon Property Group (Simon). The subject loan represents the controlling piece of a $136.0 million whole loan, with the other pari passu piece secured in the Wells Fargo Commercial Mortgage Securities, Inc. 2014 - LC18 transaction, which is also rated by Morningstar DBRS. The occupancy rate has declined since issuance, most recently reported at 83.9% in June 2024. Despite the declines in occupancy, net cash flow remains in line with expectations at issuance. The property is anchored by a Regal UA Movie Theatre (9.0% of the net rentable area (NRA), lease expiry in December 2032) and Burlington Coat Factory (6.9% of the NRA, lease expires in January 2031). The rollover risk is minimal over the next 12 months. Although there is no reported workout strategy yet, Morningstar DBRS expects Simon will attempt to negotiate a maturity extension. Morningstar DBRS' projections for this loan do not imply losses to Morningstar DBRS-rated bonds; however, Morningstar DBRS' analysis included consideration of a wind-down scenario in which only defaulted or underperforming assets remained in the pool. This consideration and the uncertainty surrounding the timing of disposition of Colorado Mills and the other loans at risk of maturity default were the primary drivers of the credit rating actions.

Outside of the specially serviced loan, the largest loan of concern is the Madison Park Office Portfolio (Prospectus ID#8; 5.8% of the current pool balance), which is secured by a seven-building, Class B office park totaling 482,835 sf in Winston-Salem, North Carolina. The loan was added to the servicer's watchlist in May 2024 for declines in occupancy and DSCR. As of the June 2024 reporting, the consolidated occupancy rate across the portfolio was 71.4%, representing a significant decline from the YE2023 rate of 94.4%. The decline follows the departure of Blue Cross and Blue Shield of North Carolina, which occupied 28.3% of the NRA at issuance. The portfolio's largest tenants are Lowe's Home Centers, Inc. (Lowe's; 35.1% of the NRA, lease expires in December 2025) and National General Management Corp. (30.1% of the NRA, lease expires in March 2027), both of which have extension options. Although there are mitigating factors to the near- to medium-term rollover, including recent tenant-funded capital investment and a cash-flow sweep, the loan's current reserve balance is low, and Morningstar DBRS expects the 2024 financial statements will indicate a substantial decline in the portfolio's combined cash flow. The borrowers are likely to face challenges in securing refinancing for the loan ahead of its November 2024 maturity. Given these concerns, Morningstar DBRS analyzed this loan with a stressed LTV adjustment and POD penalty, resulting in an EL that is more than three times the pool average.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, X-C, and X-D 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 info-DBRS@morningstar.com.

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 (June 28, 2024), https://dbrs.morningstar.com/research/435294

Morningstar DBRS Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702

North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.