Morningstar DBRS Downgrades Credit Ratings on Seven Classes of COMM 2014-UBS4 Mortgage Trust

DBRS Inc. (Morningstar DBRS) downgraded its credit ratings on seven classes of Commercial Mortgage Pass-Through Certificates, Series 2014-UBS4 issued by COMM 2014-UBS4 Mortgage Trust as follows:

-- Class B to BBB (sf) from A (sf)
-- Class X-B to B (sf) from BBB (sf)
-- Class C to B (low) (sf) from BBB (low) (sf)
-- Class PEZ to B (low) (sf) from BBB (low) (sf)
-- Class D to C (sf) from BB (low) (sf)
-- Class E to C (sf) from CCC (sf)
-- Class X-C to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-5 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class A-M at AAA (sf)
-- Class F at C (sf)
-- Class X-D at C (sf)

The trends on Classes A-M, and X-A were changed to Negative from Stable. The trends on Classes B, C, X-B, and PEZ remain Negative. Classes D, E, F, X-C, and X-D no longer carry trends as those classes have credit ratings which typically do not carry trends in Commercial Mortgage-Backed Securities (CMBS) credit ratings. The trend on Class A-5 remains Stable.

The credit rating downgrades reflect Morningstar DBRS' increased loss projections as the pool enters wind-down following the repayment of the bulk of the original pool. Since the last credit rating action, 64 loans have left the trust, contributing to significant deleveraging and concentration of largely higher credit risk collateral as performing loans reached maturity and ultimately repaid from the pool. There are 14 loans remaining in the pool as of the October 2024 remittance, 11 of which are in special servicing. Given the adverse selection and high concentration of defaulted assets, Morningstar DBRS considered liquidation scenarios for most of the remaining loans to determine recoverability for the remaining classes.

In addition to concerns with increased projected losses, there is also ongoing shorted interest to credit rated bonds, which has already exceeded or will soon exceed Morningstar DBRS' tolerance relative to the current credit rating. Class C has not received full interest since the August 2024 remittance and Class D has not received full interest since the February 2024 remittance. Morningstar DBRS' tolerance for unpaid interest is limited to three to four remittance periods at the BBB (sf) credit rating category and six remittance periods at the BB (sf) and B (sf) credit rating categories. Most of the outstanding classes carry Negative trends, reflective of the increased propensity for interest shortfalls, as well as the potential for Morningstar DBRS' loss expectations to further increase should the underlying collateral values further deteriorate or the workout periods extend beyond the near to moderate term, exposing the trust to increased property protection and other expenses accruing over the workout periods.

The largest contributors to Morningstar DBRS' loss expectations are the two largest loans remaining in the pool, both of which are in special servicing. The State Farm Portfolio (Prospectus ID#1, 31.6% of the pool) is pari passu with pieces of the loan held in the COMM 2014-UBS3 and COMM 2014-UBS5 transactions, both of which are credit rated by Morningstar DBRS, and the non-Morningstar DBRS credit rated MSBAM 2014-C16 transaction and is secured by a portfolio of 14 cross-collateralized, cross-defaulted office properties in 11 different states. The loan transferred to the special servicer in September 2023 and remains delinquent. Although the workout strategy has been noted as full payoff for the past year, there has been limited progress in the loan's resolution since the last credit rating action. Morningstar DBRS remains cautious about the refinance prospects given the underlying assets are leased but not occupied by State Farm Mutual Automobile Insurance Company (State Farm), with all but two of the leases running through 2028. While State Farm continues to make rent payments, it has physically vacated every property. The loan had an anticipated repayment date in April 2024, and is now hyperamortizing until April 2029 with annual resets of the interest rate. Recent servicer commentary indicates that one property is expected to be released in the near term. Although the continued rent payments are expected to continue to amortize the outstanding debt, Morningstar DBRS believes the current value deficiency to be significant given the dark status of the properties and the tertiary locations that will likely mean low investor demand. As such, a liquidation scenario was considered based on a stressed value analysis, which resulted in a loss severity of nearly 40%.

597 Fifth Avenue (Prospectus ID #2, 25.9% of the pool) is secured by two adjacent mixed-use properties in Manhattan's Midtown neighborhood. The property consists of 80,032 square feet (sf) of Class B office and ground-floor retail space. The loan transferred to the special servicer in October 2020 and foreclosure is in process. Sephora vacated the ground-floor retail space in 2017 and Club Monaco has since taken over the space, with a lease that ultimately ran through January 2024. The servicer confirmed an extension is currently being negotiated, though Morningstar DBRS expects the rental rate will be well below Sephora's rental rate. According to the November 2023 appraisal, the property's value has declined to $84.3 million, from the issuance appraised value of $180.0 million, reflecting a loan-to-value (LTV) ratio of nearly 140% based on the total exposure. Per the appraisal, the property had a leased rate of 43.9% at the time, and according to servicer commentary, that rate has fallen further to 26% as of May 2024. Morningstar DBRS' liquidation scenario considered a haircut to the appraised value, with a resulting loss severity of 42%.

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

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 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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with the majority of outstanding loans in various stages of default. In such cases, Morningstar DBRS credit ratings are typically based on a recoverability 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, 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; 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)

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.