DBRS Morningstar Downgrades Ratings on Two Classes of Wells Fargo Commercial Mortgage Trust 2014-LC16

DBRS, Inc. (DBRS Morningstar) downgraded its ratings of the Commercial Mortgage Pass-Through Certificates, Series 2014-LC16 issued by Wells Fargo Commercial Mortgage Trust 2014-LC16 as follows:

-- Class B to BBB (sf) from A (low) (sf)
-- Class C to C (sf) from CCC (sf)

DBRS Morningstar confirmed its ratings on the remaining classes as follows:

-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)

Class B continues to carry a Negative trend, and Classes C, D, E, and F, have ratings that do not carry trends. All other trends are Stable. Interest shortfalls remain outstanding for Classes C, D, E, and F, which continue to carry the Interest in Arrears designation.

The downgrades and Negative trend reflect a variety of factors, including increased loss expectations driven primarily by specially serviced loans and deteriorating credit support following the liquidation of one loan in 2021 that resulted in a $25.6 million loss to the trust.

Since issuance, there has been collateral reduction of 28.6%, with 69 of the original 82 loans remaining in the pool as of the February 2022 remittance. There are currently 13 loans, representing 13.7% of the current pool balance, which have been fully defeased. An additional 13 loans, representing 12.0% of the current pool balance, are on the servicer’s watchlist, and six loans, representing 25.1% of the pool, are in special servicing, including three top 15 loans that combine for 22.0% of the current pool balance.

The largest specially serviced loan is Woodbridge Center (Prospectus ID#1, 15.9% of the pool), secured by the fee interest in a 1.1 million-square-foot portion of a 1.7 million-sf super-regional mall in Woodbridge, New Jersey. DBRS Morningstar has been monitoring the loan for the last few years amid cash flow declines and the closure of two anchor stores in December 2019 and April 2020. The loan transferred to the special servicer in June 2020 for imminent monetary default, and, in October 2021, a foreclosure complaint was filed and a receiver was appointed. Occupancy has declined to 70.9% as of July 2021 from 98.1% at issuance and the most recent appraisal, dated September 2021, indicated a property value of $90.0 million, which is well below the $366.0 million appraised value at issuance and suggests a loan-to-value ratio of more than 257% on the outstanding principal balance. Based on these factors, DBRS Morningstar anticipates a significant loss will be incurred at liquidation, with a loss severity approaching 80%.

The third-largest specially serviced loan is the Oak Court Mall (Prospectus ID#18, 2.0% of the pool). This loan is a pari passu participation in a whole loan secured by portion of a super-regional mall in Memphis, Tennessee. The loan transferred to special servicing in May 2020 for imminent monetary default related to the Coronavirus Disease (COVID-19) pandemic, and failed to repay ahead of its scheduled April 2021 maturity. The loan’s sponsor, Washington Prime Group (WPG), later indicated its desire to transfer title to the trust via a deed in lieu of foreclosure and the special servicer anticipates obtaining title in the near term. The collateral was reappraised in April 2021 for a value of $15.5 million, down from the $61.0 million appraised value at issuance. Given the property’s declining performance and value, market positioning, nearby competition, and general lack of liquidity for this property type, DBRS Morningstar expects a loss severity in excess of 75% could be realized at resolution.

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-A is an interest-only (IO) certificate that references 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#1 – Woodbridge Center (15.9% of the pool)
-- Prospectus ID#18 – Oak Court Mall (2.0% of the pool)

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 the 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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