Morningstar DBRS Downgrades Credit Ratings on Three Classes of WFRBS Commercial Mortgage Trust 2014-LC14

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on three classes of Commercial Mortgage Pass-Through Certificates, Series 2014-LC14 issued by WFRBS Commercial Mortgage Trust 2014-LC14 as follows:

-- Class E to CCC (sf) from BB (sf)
-- Class F to CCC (sf) from B (sf)
-- Class X-C to CCC (sf) from B (high) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class D at BBB (low) (sf)
-- Class X-B at BBB (sf)

The trends on Classes D and X-B are Negative. Classes E, F, and X-C have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) transactions.

The credit rating downgrades on Classes E and F reflect ongoing accumulated interest shortfalls, which have persisted since July 2024 and exceed Morningstar DBRS' maximum tolerance of six months for the BB (sf) or B (sf) credit rating categories. As of the February 2025 remittance, the trust had accumulated approximately $3.7 million in interest shortfalls.

Interest shortfalls continue to accrue each month, as three of the four remaining loans in the transaction are in default. As of the February 2025 remittance, the entirety of the scheduled interest due on Classes E, F, and G was not being advanced. The Negative trend on Class D reflects Morningstar DBRS' concern that, in the event the servicer deems loans nonrecoverable, interest shortfalls may increase to Class D.

In its previous credit rating action in April 2024, Morningstar DBRS changed the trends on Classes D, X-B, E, F, and X-C to Negative from Stable to reflect liquidated loan loss expectations upon resolution, as well as the expectation that interest shortfalls would continue to increase as the pool became more concentrated with defaulted loans. Since April 2024, four loans have been repaid or liquidated from the trust. Three of the four remaining loans, representing 65.6% of the pool, are in special servicing. All three loans were specially serviced at the prior review. In its analysis for this review, Morningstar DBRS received updated appraisals for the collateral securing all three loans. To test the credit ratings' durability, Morningstar DBRS' analysis for this review maintained a liquidation scenario for these loans based on various stresses to the most recent appraised values. While the recoverability analysis indicates that losses are expected to be contained to the unrated Class G certificate, the credit ratings are constrained by Morningstar DBRS' tolerance for outstanding interest shortfalls as noted above.

The largest loan, Williams Center Towers (Prospectus ID#6, 41.8% of the pool), is secured by an office complex totaling 765,809 square feet (sf) of space in the central business district (CBD) of Tulsa, Oklahoma. Occupancy began to decline at the subject in 2018, when the loan transferred to the special servicer following the bankruptcy of large tenant Samson Investment Company. By June 2023, occupancy had declined to 61.0%. Two updated appraisals were reported in 2024, with the March 2024 appraisal valuing the property at $40.6 million and the November 2024 appraisal valuing the property at $41.5 million following a slight increase in occupancy. As of the October 2024 rent roll, occupancy had improved slightly to 67.5%, with the debt service coverage ratio (DSCR) for the trailing three months ended March 31, 2024, reported at 0.91 times (x), also a slight increase from the YE2023 figure (which was 0.88x). While the submarket also showed improvement in 2024, with the submarket's vacancy dropping 2.0% to 20.1% as of Q4 2024 Reis reporting, the likelihood of a significant rebound remains low. Given the continued low occupancy, soft submarket, and limited investor appetite, Morningstar DBRS continues to expect a higher loss severity than indicated by the updated appraisals. For these reasons, Morningstar DBRS liquidated the loan in its current analysis, applying a 40% haircut to the November 2024 appraised value, resulting in a loss severity over 45.0%.

The second-largest loan, Canadian Pacific Plaza (Prospectus ID#8, 34.5% of the pool), is secured by a 394,000-sf Class B office property in the Minneapolis CBD. The loan has been on the servicer's watchlist since June 2020 because of a significant drop in occupancy. For the trailing nine-month period ended September 30, 2024, the DSCR and occupancy were reported at 0.28x and 60.0%, respectively. While both figures are above the prior year's reporting, the poor performance remains a concern. The loan had an anticipated repayment date in November 2023 and is now scheduled to hyperamortize through November 2028. According to the servicer's commentary, the loan is in cash management but remains current on payments as the borrower continues to fund out of pocket. The loan's continued deleveraging mitigates some of the above-noted concerns. The current loan-to-value ratio (LTV) is 62.2% based on the issuance appraised value, down from the issuance LTV of 74.3%; however, given the significantly depressed performance and soft submarket, Morningstar DBRS expects that the property value has declined since issuance, increasing the default risk for this loan.

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 and X-C 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 (February 28, 2025), https://dbrs.morningstar.com/research/448963.

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.

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, Inc.
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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 (December 13, 2024)/North American CMBS Insight Model version 1.2.0.0, 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

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