DBRS Morningstar Confirms All Credit Ratings on MCAP CMBS Issuer Corporation, Series 2014-1

DBRS Limited (DBRS Morningstar) confirmed all credit ratings on the Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by MCAP CMBS Issuer Corporation, Series 2014-1 (the Issuer) as follows:

-- Class D at AAA (sf)
-- Class E at AAA (sf)
-- Class F at BBB (low) (sf)
-- Class G at B (sf)

All trends are Stable.

The credit rating confirmations reflect the minimal changes in DBRS Morningstar’s expectations since the last credit rating action in December 2022. There have been no loan payoffs or liquidations since the last review, and minimal amortization. Given the concentration of the pool, with only three loans remaining, DBRS Morningstar’s credit ratings are based on a recoverability analysis, which indicate a low likelihood of losses to the investment-grade rated classes. The remaining three loans report a healthy weighted-average (WA) debt service coverage ratio of nearly 1.90 times (x) and WA debt yield of 16.4% based on the YE2022 financials.

According to the November 2023 remittance, the transaction is concentrated with only three of the original 32 loans remaining in the pool with an aggregate principal trust balance of $11.9 million, representing a 94.7% collateral reduction since issuance. All three loans are current, and no updated appraisals have been reported since issuance. DBRS Morningstar’s analysis concluded that, based on the most recent reporting, the underlying assets would have to sustain significant declines in performance or reductions to the issuance appraised values of more than 50% in aggregate for the rated bonds to be at risk of default. The three loans, all of which have 50% or more sponsor recourse, are scheduled to mature in 2024. As noted above, recent and historical credit metrics indicate they are healthy candidates for refinance. However, DBRS Morningstar’s credit ratings are somewhat constrained by the minimal credit support offered given the thin junior tranche sizing, further supporting the credit rating confirmations.

Based on the most recent servicer reporting, all three loans continued to exhibit stable performance. The only underlying asset with scheduled lease rollover during the remaining loan term is 3571–3609 Sheppard Ave East (Prospectus ID#11, 50.7% of the pool), which is secured by an office/retail property, located in Scarborough, Ontario. According to the August 2023 rent roll, only the basement lease is scheduled to expire within the next 12 months. The 175 Rue de Rotterdam loan (Prospectus ID#15, 39.7% of the pool) and the 5498 Boulevard Henri-Bourassa loan (Prospectus ID#32; 9.7% of the pool) are secured by single-tenant properties fully occupied on long-term leases. Annual improvements in cash flow have primarily been driven by scheduled rent steps.

As noted at the time of DBRS Morningstar’s last credit rating action, only one loan, 1121 Centre Street NW (Prospectus ID#7, previously 20.5% of the pool), has been liquidated from the trust since deal closing, which resulted in a loss of $3.2 million in May 2022. The loan was formerly secured by a Class B mid-rise office building in Calgary, and was sold in October 2020 for $6.8 million, with proceeds from the sale used to pay down the trust loan, outstanding advances, and other fees. A balance of $3.3 million remained in the trust following the sale and was recourse to the borrowing entity and guarantor. Ultimately, the Issuer sold the personal guarantee for $123,000, eventually resulting in the aforementioned loss of $3.2 million. The loss, which was in line with DBRS Morningstar’s expectations, was contained to the nonrated Class H certificate.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/416784 (July 4, 2023).

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 16, 2023; https://www.dbrsmorningstar.com/research/410912).

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

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 credit ratings were 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.

DBRS Morningstar 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.

These are solicited credit ratings.

DBRS Morningstar notes that a sensitivity analysis was not performed for this review as the transaction is winding down, with only three loans remaining. In such cases, DBRS Morningstar credit ratings are typically based on a recoverability analysis.

DBRS Limited
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (November 3, 2023)/North American CMBS Insight Model v 1.2.0.0 (https://www.dbrsmorningstar.com/research/422859)
-- DBRS Morningstar North American Commercial Real Estate Property Analysis Criteria (September 22, 2023; https://www.dbrsmorningstar.com/research/420982)
-- North American Commercial Mortgage Servicer Rankings (August 23, 2023; https://www.dbrsmorningstar.com/research/419592)
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)
-- Legal Criteria for Canadian Structured Finance (June 20, 2023;
https://www.dbrsmorningstar.com/research/416101)

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/410863.

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