DBRS Morningstar Downgrades Two Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17

DBRS Limited (DBRS Morningstar) downgraded two classes of the Commercial Mortgage Pass-Through Certificates, Series 2014-C17 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2014-C17 as follows:

-- Class F downgraded to B (low) (sf) from B (sf)
-- Class X-C downgraded to B (sf) from B (high) (sf)

DBRS Morningstar also confirmed the ratings on the following classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class PST at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)

In addition, DBRS Morningstar changed the trends on Classes E, F and X-C to Negative from Stable. All other trends are Stable.

The Class PST certificates are exchangeable for the Class A-S, Class B and Class C certificates (and vice versa).

The rating downgrades and Negative trend changes reflect DBRS Morningstar’s concerns regarding two loans in the top 15 that are currently in special servicing, including the second-largest loan, Aspen Heights – Statesboro (Prospectus ID#4; 6.0% of the current pool balance), which has been in special servicing since April 2019 and real estate owned (REO) as of June 2019. The property is a 339-unit 1,087-bed student housing property in Statesboro, Georgia, located 2.0 miles south of Georgia Southern University (GSU). Occupancy at the property declined to 81.4% as of the March 2019 rent roll, down from 92.1% as at YE2016. This is a result of a declining student population at GSU, which dropped by 9.4% from 2017 to 2018 with 18,499 students enrolled, the lowest since 2008. The July 2019 appraisal obtained by the special servicer provided an as-is value of $47.3 million, which is a significant decline from the issuance value of $69.1 million. Based on the as-is value, DBRS Morningstar assumed a loss severity approaching 25.0% for this review; however, the final resolution could result in a higher loss severity, as the property will continue to face headwinds over the near to medium term and investor demand is expected to be tepid given the market and cash flow history. Thus, due to the possibility of a higher loss severity than implied by the most recent value, DBRS Morningstar changed the trends on the Class E, F and X-C certificates to Negative.

The second loan in special servicing is Holiday Inn Houston Intercontinental Airport (Prospectus ID#17; 2.3% of the current pool balance). The loan has been in special servicing since March 2017, and the property has been REO since July 2018. The collateral is a 414-key full-service hotel located in Houston. Performance declines came to a head in 2017 when the borrower could not complete required performance improvement plan renovations as required by the franchisor and the franchise agreement went into default. The servicer has worked with the franchisor to negotiate the franchise agreement’s reinstatement, and the required improvements are expected to be completed by November 2019. For this review, DBRS Morningstar assumed a full loss on the loan based on the most recent as-is appraised value of $15.9 million as of April 2019.

For additional information on the specially serviced loans, please see the Loan Commentary for each on the DBRS Viewpoint platform, for which information is provided below.

There has been a collateral reduction of 20.9% since issuance, with 60 of the original 67 loans remaining in the pool as of the September 2019 remittance report. The majority of the remaining loans in the pool were structured with ten-year terms that will mature in 2024. Four loans are fully defeased, representing 2.3% of the pool. Loans representing 97.2% of the pool reported YE2018 financials with a weighted-average (WA) debt service coverage ratio (DSCR) and debt yield of 1.69 times (x) and 10.7%, respectively. The largest 15 loans reported YE2018 financials with a WA DSCR and WA debt yield of 1.55x and 10.6%, respectively, representing a WA cash flow improvement of 6.1% over the DBRS Morningstar Net Cash Flow figures derived at issuance. As of the September 2019 remittance, there are four loans (including one in the top 15), representing 5.0% of the pool, on the servicer’s watchlist. Three loans are being monitored for declines in performance, while one loan was flagged for failure to submit financials.

Classes X-A, X-B and X-C and 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 ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#4 – Aspen Heights – Statesboro (6.0% of the pool)
-- Prospectus ID#11 – Dixie Manor (2.7% of the pool)
-- Prospectus ID#17 – Holiday Inn Houston Intercontinental Airport (2.3% of the pool)
-- Prospectus ID#33 – Arrowhead Professional Park (1.1% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for most outstanding commercial mortgage-backed security transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology, which can be found on dbrs.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document, which can be found on www.dbrs.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that 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.

This transaction is endorsed by DBRS Ratings Limited for use in the European Union. The following additional regulatory disclosures apply to endorsed ratings:

The credit rating has been disclosed to the master servicer and trustee of each securitization, as representatives of the issuers, through the 17g-5 information provider, master servicer directly and/or the depositor.

The last rating action on this transaction took place on March 26, 2019, when the ratings for all classes were confirmed with Stable trends.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Lead Analyst: Gloria Au, Assistant Vice President, North American CMBS
Rating Committee Chair: Richard Carlson, Senior Vice President, North American CMBS
Initial Rating Date: July 23, 2014

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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