DBRS Morningstar Confirms Ratings on CMLS Issuer Corp., Series 2014-1

DBRS Limited (DBRS Morningstar) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by CMLS Issuer Corp., Series 2013-1 as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AA (sf)
-- Class C at AA (low) (sf)
-- Class X at AA (low) (sf)
-- Class D at BBB (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (sf)
-- Class G at B (sf)

All trends are Stable.

The rating confirmations reflect the overall stable performance of the transaction. As of the March 2021 remittance, 25 of the original 37 loans remain in the pool, with a total collateral reduction of 34.2% since issuance. Although the pool benefits from significant paydown since issuance, there are noteworthy performance declines for some loans in the pool, which are on the servicer’s watchlist. As of the March 2021 remittance, there are total of five loans, representing 23.8% of the current trust balance, on the servicer’s watchlist, and no loans in special servicing. The servicer is monitoring the watchlisted loans for a variety of reasons, including low debt service coverage ratios and occupancy issues. Many of these loans were being monitored prior to the Coronavirus Disease (COVID-19) pandemic and have remained on the watchlist due to additional relief requests submitted by the respective borrowers. In general, the mitigating factors in recourse provisions for some loans, generally low leverage, and amortization for the loans on the servicer’s watchlist were considered as part of the assignment of Stable trends to all rated classes.

The transaction is highly concentrated by property type as 12 loans, representing 40.4% of the current trust balance, are secured by retail collateral; mixed-use properties back the second-largest concentration of loans, with three loans representing 17.5% of the current trust balance. Although the coronavirus pandemic has brought challenges for retailers, particularly those struggling prior to the pandemic, the subject transaction’s exposure to the specific retail property types and tenants that have been the most stressed is generally minimal. DBRS Morningstar notes that several of the retail properties securing loans in the subject transaction have tenants that are considered essential services, such as food and pharmaceutical providers, which have generally been among the most stable in the coronavirus pandemic environment.

Spring Garden Place (Prospectus ID#5, representing 6.4% of the pool), the second-largest loan on the servicer’s watchlist, is secured by a mixed-use office building located in Halifax. Originally built in 1983, the subject property is composed of a diverse roster of tenants, including office spaces, restaurants, and retailers. This loan was originally added to the servicer’s watchlist in May 2017 due to a decline in debt service coverage ratio. The most notable tenant departure since issuance includes IWK Health Centre (formerly 22.1% of the net rentable are (NRA)), which vacated the property at the September 2018 lease expiration. Additionally, The Bank of Nova Scotia (rated AA with a Stable trend by DBRS Morningstar) reduced its footprint from 24.1% of the NRA to 5.3% of the NRA in August 2019. Although the borrower was successful in signing a few smaller tenants in Q4 2019, the property’s occupancy rate remains low. According to the March 2020 rent roll, occupancy was reported at 68.0%, compared with 54.3% at year-end 2018. In May 2020, the borrower was granted a three-month pandemic-related forbearance. Monthly principal and interest payments resumed in October 2020 and the loan has remained current since the end of the forbearance period.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Class X is an interest-only (IO) certificate that references multiple rated tranches. When determining the rating assigned to Class X, consideration was given for actual loan, transaction, and sector performance where a rating based on the lowest-rated applicable reference obligation may not reflect the observed risk.

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 this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS 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 Canadian dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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@dbrsmorningstar.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.

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

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