DBRS Morningstar Downgrades Eight Classes of Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21; Five Classes Carry Negative Trends

DBRS Limited (DBRS Morningstar) downgraded eight classes of the Commercial Mortgage Pass-Through Certificates, Series 2015-C21 issued by Morgan Stanley Bank of America Merrill Lynch Trust 2015-C21 as follows:

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

DBRS Morningstar changed the trends on Classes X-B, B, C, and PST to Negative from Stable. Classes D, E, F, and G have ratings that do not carry trends, and DBRS Morningstar designated those classes as having Interest in Arrears.

In addition, DBRS Morningstar confirmed its ratings on the following classes:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class 555A at A (sf)
-- Class 555B at BBB (sf)

DBRS Morningstar changed the trend on Class A-S to Negative from Stable. All other classes have Stable trends.

DBRS Morningstar also discontinued its ratings on Classes X-E and X-FG because the lowest-rated reference obligations, Classes F and G, were downgraded to C (sf).

The rating downgrades and Negative trends reflect the increased losses to the trust expected by DBRS Morningstar, primarily attributed to three specially serviced loans in the pool. The largest loan in special servicing is the Westfield Palm Desert Mall (Prospectus ID#1, 7.9% of the trust balance) loan, which has been in special servicing since July 2020 and was last paid in April 2020. In March 2021, the special servicer reported a September 2020 appraised value of $65.9 million, down by 68.9% from the issuance value of $212.0 million and indicative of an as-is loan-to-value on the pari passu senior note balance of approximately 190.0%. Based on the updated value and the likelihood that the loan will be liquidated by the special servicer, DBRS Morningstar expects a loss severity in excess of 60.0%, the primary driver for the rating downgrades as previously outlined.

The interest-only (IO) pari passu loan had a total issuance balance of $125.0 million, with the other piece held in the WFCM 2015-C27 transaction (also DBRS Morningstar rated). The loan is secured by a 572,724-square-foot (sf) portion of a 977,888-sf regional mall in Palm Desert, California. Since the loan’s transfer to special servicing, the servicer has been in discussions with the sponsor regarding a potential workout, with lender remedies also being tracked as a resolution strategy. The servicer noted that the loan is structured with a sponsor guaranty that would cover the difference between the outstanding loan balance and the foreclosure proceeds. Although the guaranty is noteworthy, the servicer noted the work remains ongoing to determine the feasibility of enforcing the guaranty. DBRS Morningstar did not give any credit to the guaranty in the analysis for this review.

The sharp value decline for the mall is generally the product of previous cash flow declines that preceded the onset of the Coronavirus Disease (COVID-19) pandemic; however, the mall’s tertiary location and related limitations in attracting replacement tenants to backfill existing vacancies were also significant contributors to the loss in value since the subject loan was made in 2015. The mall’s active anchors are Macy’s and JCPenney, with a dark Sears that was closed in early 2020. None of the anchor boxes are collateral for the subject loan. The largest collateral tenants include Dick’s Sporting Goods, Tristone Cinemas, and Barnes & Noble. As of March 2020, the subject reported a debt service coverage ratio (DSCR) of 1.58 times (x), a decline compared with the YE2019 and YE2018 DSCR figures of 1.97x and 2.26x, respectively.

The second specially serviced loan is the Stone Ridge Plaza loan (Prospectus ID#12, 2.3% of the pool balance), secured by a retail property located in Rochester, New York. The loan transferred to special servicing in October 2020 for payment default and, as of the April 2021 remittance, the loan was more than 90 days delinquent. The subject had previously reported occupancy declines from issuance but had kept the loan current until the onset of the coronavirus pandemic. The former largest tenant, Toys “R” Us, which represented 26.4% of the net rentable area (NRA), vacated its space in 2017, which drove the occupancy rate below 70.0% until a portion of the space was backfilled by Roc Furniture, which took a space representing 15.2% of the NRA on a lease through July 2024. Occupancy had rebounded to approximately 86.0% as of June 2020 but according to the servicer’s commentary, the December 2020 occupancy rate was reported at 67.0%. The loan reported a trailing six months ended June 30, 2020, DSCR of 0.74x, compared with the YE2019 DSCR of 0.90x and DBRS Morningstar DSCR at issuance of 1.40x. The November 2020 appraisal value of $11.7 million was reported with the February 2021 remittance, which is a 53.8% decline from the issuance value of $25.3 million, and is below the current loan balance of $18.3 million. The special servicer and the borrower continue to discuss the workout strategy with the possibility of a loan modification; however, the terms have not been finalized to date. Given the decline in value from issuance and the sustained performance declines from issuance, this loan was analyzed with a liquidation scenario, which resulted in a loss severity in excess of 50.0%.

The Fairfield Inn – Morgantown (Prospectus ID#18, 1.3% of the pool balance) is the third noteworthy loan in special servicing and is secured by a limited-service hotel in Morgantown, West Virginia. The loan transferred to special servicing in October 2020 for imminent monetary default and, as of the April 2021 remittance, was more than 90 days delinquent. Based on the servicer’s commentary, the borrower will be transferring ownership of the property to the trust and, as of March 2021, the receivership motion was granted. Based on the January 2021 appraisal, the property was valued at $6.2 million, which is a 63.5% decrease from the issuance value of $17.0 million and below the current trust balance of $10.4 million. According to the trailing 12 month ended June 30, 2020, financials, the loan reported a DSCR of 0.64x, compared with the YE2019 DSCR of 1.04x and DBRS Morningstar DSCR at issuance of 1.82x. This loan’s prior performance declines and sharp drop in the appraised value were also considered, with a liquidation scenario used for this review that resulted in a loss severity in excess of 55.0%.

In general, this pool has a high exposure of loans in special servicing and on the servicer’s watchlist, which represented 25.1% and 26.0% of the pool balance, respectively, as of the April 2021 remittance. The watchlisted loans are being monitored for various reasons, including a low DSCR or occupancy figure, trigger event, and/or pandemic-related forbearance requests. Of the original 64 loans, 62 loans remain in the pool, representing a collateral reduction of 9.5%. Four loans, representing 4.5% of the pool, are fully defeased.

The Class 555A and Class 555B certificates are rake bonds backed by the 555 11th Street NW subordinate B note, which is a $57.0 million loan that is composed of a portion of the $177.0 million whole loan secured by the collateral property, a Class A office building in Washington, D.C. The whole loan comprises a $90.0 million pari passu A note ($60.0 million of which is held in the subject trust and backs the pooled bonds); a $30.0 million senior B note (not held in any commercial mortgage-backed securities transactions); and a $57.0 million subordinate B note, of which a $30.0 million pari passu portion was contributed to the subject transaction. The subordinate B note is below the senior B note in payment priority. The performance of the underlying collateral has been strong since issuance. As of September 2020, the servicer reported a 97.0% occupancy rate and a DSCR of 2.69x, compared with the YE2019 DSCR of 2.39x. The largest tenants are Latham & Watkins (58.1% of the NRA, expiring January 2031), Silver Cinemas (9.7% of the NRA, expiring March 2032), and the American Cancer Society (5.9% of the NRA, expiring October 2021). Given the strength in tenancy with minimal rollover in the near to moderate term, DBRS Morningstar considers the risks with this loan to be generally unchanged.

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.

Classes X-A and X-B are 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.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loan including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer 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 U.S. 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

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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