Morningstar DBRS Downgrades Four Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19, Changes Trends on Three Classes to Negative from Stable

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on four classes of Commercial Mortgage Pass-Through Certificates, Series 2014-C19 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C19 as follows:

-- Class D to C (sf) from BBB (low) (sf)
-- Class X-D to C (sf) from BBB (sf)
-- Class E to C (sf) from CCC (sf)
-- Class X-E to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class X-B at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-C at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class PST at A (high) (sf)
-- Class F at C (sf)

Morningstar DBRS changed the trends on Classes C, X-C, and PST to Negative from Stable. 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 trends on all remaining classes are Stable.

Since the previous credit rating action in February 2024, a total of 48 loans have been repaid in full, including 300 North LaSalle (Prospectus ID#2), contributing to a principal repayment of nearly $106.0 million as of the August 2024 payment period and leaving the trust with a current balance of $270.8 million as of the January 2025 reporting. In addition, one formerly real estate owned (REO) loan was liquidated from the trust at a price below Morningstar DBRS' expectations, bringing the total realized losses to the trust to $12.9 million, all of which are contained to the nonrated Class G certificate.

The driver of the credit rating downgrades to Classes D, E, X-D, and X-E is sustained interest shortfalls that have exceeded Morningstar DBRS' tolerance level for bonds rated at the BBB (low) (sf) credit rating category. The Negative trends assigned to Classes C and X-C reflect the potential for further accumulation of interest shortfalls, given the large concentration of defaulted and/or underperforming assets in the pool. Per the January 2025 reporting, cumulative unpaid interest totaled $6.2 million, up from $3.5 million at the last credit rating action. Classes E, F, and G have not received any interest payments since at least September 2023, while Class D has been shorted interest payments since September 2024, receiving only $16,000 of interest payments with the January 2025 remittance. Morningstar DBRS' tolerance for unpaid interest is limited to one to two remittance periods at the AA (sf) and A (sf) credit rating categories, and three to four remittance periods at the BBB (sf) credit rating category.

As of the January 2025 reporting,13 of the original 77 loans remain in the pool, representing a collateral reduction of 81.6% since issuance, with 10 loans (62.1% of the pool) in special servicing, including four REO loans (20.0% of the pool). As the pool continues to wind down, Morningstar DBRS considered liquidation scenarios for all specially serviced loans to determine the recoverability of the outstanding certificates. The results indicate that liquidated losses would be contained to the Class F certificate. While three loans current, including the largest loan in the pool, Gantry Park Landing (Prospectus ID#4; 24.0% of the pool), Morningstar DBRS notes that the risk of further value deterioration for select specially serviced loans, such as the Ormsby Office Building (Prospectus ID #7; 19.5% of the pool) that was recently transferred to special servicing for maturity default in November 2024 and has yet to be reappraised, is likely (please see below for more details). Additionally, given the current higher interest rate/widening capitalization-rate environment, the refinance risk for the outstanding loans is elevated, which may affect the recoverability timeline for the outstanding bonds and increase the propensity for interest shortfalls.

The largest contributor to Morningstar DBRS' cumulative projected loss amount of $50.4 million is the third-largest loan remaining in the pool, PacStar Retail Portfolio (Prospectus ID#9; 15.5% of the pool), which is backed by two anchored retail properties (Yards Plaza in Chicago and Willowbrook Court Shopping Center in Houston). The loan transferred to special servicing in September 2021 for imminent nonmonetary default and, following an extended period of delinquency, it failed to repay at maturity in December 2024. Per the servicer's most recent commentary, the Yards Plaza property is currently being marketed for sale; however, litigation against the guarantor remains ongoing as a result of structural damage to the property and the incurrence of unpermitted debt, which could further delay the workout. A November 2024 appraisal valued the property at $22.9 million, 67.1% below the issuance appraised value of $69.6 million. Based on the most recent value, Morningstar DBRS analyzed the loan with a liquidation scenario based on a 10% haircut to the November 2024 value, which resulted in a loss severity in excess of 70.0%.

Two loans (21.5% of the pool) are secured by office collateral, including the largest special serviced loan, Ormsby Office Building, which is backed by three office properties in Louisville, Kentucky. While the collateral's performance has historically been stable with the most recent occupancy rate and debt service coverage ratio reported at 85.0% and 1.77 times, respectively, as of Q2 2024, the loan was not repaid at maturity in October 2024, and has been delinquent since, with the borrower reported as unresponsive. In addition, the property has a heightened tenant rollover risk during the next 12 months, with leases representing more than 21.0% of the net rentable area due to expire. Per Reis, the Far East Louisville submarket reported a vacancy of 21.1%, with an asking rental rate of $20.35 per square feet (psf), lower than the collateral's average rental rate of $22.86 psf as of June 2024. No updated appraisal has been received to date; however, to account for the likely decline in performance and the soft submarket for office assets in Louisville, Morningstar DBRS considered a conservative haircut of nearly 30% to the issuance appraised value, with a resulting value of approximately $54.2 million and a resulting liquidated loss severity of 11.0%.

The largest loan in the pool, Gantry Park Landing, is secured by a multifamily property in Long Island City, New York, and is the only loan currently on the servicer's watchlist where it is being monitored for its December 2024 maturity. Per the servicer's most recent commentary, the borrower is working on refinancing the loan and has been granted a 60-day forbearance to facilitate the repayment. Additionally, as the property's performance remains stable based on the most recent financials, Morningstar DBRS expects no loss upon the loan's resolution.

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-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 winding 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.

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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

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

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

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.