Morningstar DBRS Downgrades Credit Ratings on 11 Classes of JPMBB Commercial Mortgage Securities Trust 2014-C25, Changes Trends on Four Classes to Stable From Negative

DBRS Limited (Morningstar DBRS) downgraded its credit ratings on 11 classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C25 issued by JPMBB Commercial Mortgage Securities Trust 2014-C25 as follows:

-- Class A-S to A (high) (sf) from AAA (sf)
-- Class B to BBB (sf) from A (sf)
-- Class C to BB (sf) from BBB (high) (sf)
-- Class D to C (sf) from B (high) (sf)
-- Class E to C (sf) from CCC (sf)
-- Class X-A to AA (low) (sf) from AA (sf)
-- Class X-B to BBB (high) (sf) from A (high) (sf)
-- Class X-C to BB (high) (sf) from A (low) (sf)
-- Class X-D to C (sf) from BB (low) (sf)
-- Class X-E to C (sf) from CCC (sf)
-- Class EC to BB (sf) from BBB (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-5 at AAA (sf)
-- Class F at C (sf)

The trends on Classes A-S, X-A, B, and X-B were changed to Stable from Negative. Classes C, X-C, and EC continue to carry Negative trends. Classes D, E, F, X-D, and X-E have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) credit ratings. The trend on Class A-5 is Stable.

The credit rating downgrades reflect Morningstar DBRS' outlook for the remaining loans in the pool based on a recoverability analysis as the transaction is now in wind-down. Since the previous credit rating action in March 2024, a total of 38 loans have repaid from the trust, including 17 loans that were previously defeased, contributing to a principal repayment of nearly $477.0 million.

As of the January 2025 remittance, only 13 loans remain in the pool with an aggregate principal amount of $383.0 million, representing a collateral reduction of 67.7% since issuance. Ten of these loans are specially serviced (81.6% of the pool), while two loans (15.3% of the pool) are being monitored on the servicer's watchlist for upcoming maturity dates and the remaining loan (3.0% of the pool) is defeased with a scheduled maturity in October 2025. To date, the trust has realized $14.2 million in losses, which have been contained to the nonrated Class G. Interest shortfalls have increased to $6.0 million as of the January 2025 reporting, compared with the $4.3 million shortfall reported at the last review. Classes E, F, and NR have not received any interest since at least October 2024, while Class D has received only partial interest since December 2024, receiving roughly 50% of interest due with the January 2025 remittance.

Given the concentration of defaulted and under-performing assets, Morningstar DBRS' analysis considered liquidation scenarios for all 10 specially serviced loans and the one distressed performing loan, based on conservative stresses to the most recent appraised values to determine the recoverability of the outstanding bonds. Morningstar DBRS' estimated liquidated losses are likely to erode half of the Class D certificate, a primary consideration in the downgrades to the credit ratings of Classes D and E. While Classes A-S, B, and C would be insulated from losses based on the current liquidated loss projections, Morningstar DBRS' downgrades to these classes are reflective of the credit deterioration since issuance, the highly concentrated nature of the remaining pool, and the extended timeline for recoverability. Morningstar DBRS concluded that the senior Class A-5 continues to be insulated from losses and is likely to be fully recoverable from repayments and liquidation proceeds, the primary consideration in the credit rating confirmation of that class.

Morningstar DBRS also remains concerned about the increased propensity for interest shortfalls given that most of the specially serviced loans are recent transfers with an uncertain resolution timeframe. The possibility of additional defaults; the increased propensity for interest shortfalls; and the further declines in value of the specially serviced loans, thus increasing in Morningstar DBRS' loss projections, are considered key drivers for the Negative trend on Class C. Morningstar DBRS' wind-down scenario, however, indicated that the senior investment-grade-rated classes are well insulated from losses, with nearly $85.0 million in remaining credit support beneath the Class B certificate based on current loss projections, thereby supporting the trend change on Classes A-S and B to Stable from Negative.

Morningstar DBRS' loss expectations are primarily driven by the largest loan in the pool, CityPlace (Prospectus ID#1; 25.9% of the pool), backed by five office properties and one mixed-use property in the CityPlace Campus in Creve Coeur, Missouri. The loan transferred to special servicing in July 2024 because of imminent monetary default and subsequently failed to repay at maturity in October 2024. However, a loan modification was executed in December 2024, according to servicer commentary, and the loan is pending return to the master servicer. As per the terms of the loan modification agreement, the borrower is required to deposit $2.0 million into an excess cash reserve account in exchange for a 38-month maturity extension through December 2027, followed by a 12-month extension option, which is conditional on achieving a debt yield hurdle of 13.0% on a trailing 12-month basis, for a fully extended maturity date in December 2028. According to the June 2024 rent roll, the property was 85.7% occupied, with leases totaling approximately 35.0% of the net rentable area (NRA) scheduled to roll over in the next 12 months and 60.0% of the NRA scheduled to rollover by the loan's revised final maturity date. The debt service coverage ratio (DSCR) as of YE2023 was reported at 1.36 times (x), likely to be stressed further as leases roll. While the execution of the modification agreement is a positive development, Morningstar DBRS remains concerned about the recent maturity default, significant rollover risk prior to the maturity date, and softening submarket conditions as Reis reported an average vacancy rate of 24.1% in Q3 2024. As such, the loan was analyzed with a liquidation scenario based on a conservative haircut of 50% to the issuance appraised value to account for likely value deterioration given performance declines. The resulting projected loss severity is 35.0%, or approximately $35.0 million.

Spectra Energy Headquarters (Prospectus ID#5; 13.4% of the pool) is secured by a 614,000 square foot office building in Houston. The loan was added to the servicer's watchlist in April 2024, ahead of its anticipated repayment date (ARD) of October 2024. The loan did not pay off by the ARD, thereby initiating ARD provisions wherein all excess cash flow will be applied to the repayment of the principal balance until the loan's maturity date in October 2027. The property is fully occupied by Enbridge, Inc. (Enbridge; formerly Spectra Energy Westheimer, LLC, a subsidiary of Spectra Energy Corporation, which was merged with Enbridge in 2017; rated A (low) with a Stable trend by Morningstar DBRS) on a lease through April 2026; however, the servicer confirms Enbridge no longer operates at the subject property. The DSCR remains above 2.0x as Enbridge continues to fulfil its lease payment obligations, however, unless the borrower is able to backfill the large vacancy at the subject, the loan is likely to default once Enbridge's payments cease at lease expiry. There is ample time for the borrower to find a replacement tenant, however, the average vacancy rate of 26.6% across office properties in the Galleria/West Loop submarket reported by Reis in Q4 2024 is likely to pose challenges in backfilling the large area at the subject. While the loan will continue to deleverage through Enbridge's lease expiration, Morningstar DBRS is concerned about the high risk of maturity default stemming from the property potentially becoming fully vacant in a softening submarket. As such, the loan was analyzed with a liquidation scenario based on a conservative haircut of 60% to the issuance appraised value, resulting in a projected loss severity of 35.0%, or approximately $17.5 million.

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, 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 (December 13, 2024), https://dbrs.morningstar.com/research/444617.

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.

Morningstar DBRS notes that a sensitivity analysis was not performed for this review as the transaction is in wind down, with only 13 loans remaining. 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 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 (December 13, 2024), https://dbrs.morningstar.com/research/444616

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

-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

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

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