Rating Action: Moody's affirms nine, confirms one and downgrades two classes of COMM 2014-CCRE14
Global Credit Research - 09 Jul 2020
Approximately $998.2 million of structured securities affected
New York, July 09, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on nine classes, confirmed the rating on one class and downgraded the ratings on two classes in COMM 2014-CCRE14 Mortgage Trust ("COMM 2014-CCRE14"), Commercial Pass-Through Certificates, Series 2014-CCRE14 as follows:
Cl. A-2, Affirmed Aaa (sf); previously on Feb 25, 2019 Affirmed Aaa (sf)
Cl. A-SB, Affirmed Aaa (sf); previously on Feb 25, 2019 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on Feb 25, 2019 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Feb 25, 2019 Affirmed Aaa (sf)
Cl. A-M, Affirmed Aaa (sf); previously on Feb 25, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa3 (sf); previously on Feb 25, 2019 Affirmed Aa3 (sf)
Cl. C, Affirmed A3 (sf); previously on Feb 25, 2019 Affirmed A3 (sf)
Cl. D, Downgraded to Ba2 (sf); previously on Apr 17, 2020 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Caa1 (sf); previously on Apr 17, 2020 B3 (sf) Placed Under Review for Possible Downgrade
Cl. F, Confirmed at Caa3 (sf); previously on Apr 17, 2020 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. X-A*, Affirmed Aaa (sf); previously on Feb 25, 2019 Affirmed Aaa (sf)
Cl. PEZ**, Affirmed Aa3 (sf); previously on Mar 18, 2019 Upgraded to Aa3 (sf)
* Reflects interest-only classes
** Reflects exchangeable classes
The ratings on seven principal and interest (P&I) classes were affirmed because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.
The ratings on two P&I classes, were downgraded due to the decline in pool performance and higher anticipated losses from the specially serviced and troubled loans.
The rating on P&I class, Cl. F was confirmed because the ratings are consistent with Moody's expected loss plus realized losses.
The rating on the interest-only (IO) class, Cl. X-A, was affirmed based on the credit quality of the referenced classes.
The rating on the exchangeable class was affirmed due to the credit quality of the referenced exchangeable classes.
The actions conclude the review for downgrade initiated on April 17, 2020.
The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of commercial real estate from the collapse in US economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Stress on commercial real estate properties will be most directly stemming from declines in hotel occupancies (particularly related to conference or other group attendance) and declines in foot traffic and sales for non-essential items at retail properties.
Moody's rating action reflects a base expected loss of 4.8% of the current pooled balance, compared to 5.4% at the last review. Moody's base expected loss plus realized losses is now 4.5% of the original pooled balance, compared to 4.2% at the last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in rating all classes except exchangeable classes and interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1226187 and "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875. The principal methodology used in rating exchangeable classes was "Moody's Approach to Rating Repackaged Securities" published in June 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1230078. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1226187, "Moody's Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" published in May 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1227875, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *) and exchangeable classes (indicated by the **). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
As of the June 12, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 25% to $1.03 billion from $1.38 billion at securitization. The certificates are collateralized by 45 mortgage loans ranging in size from less than 1% to 15% of the pool, with the top ten loans (excluding defeasance) constituting 62% of the pool. Two loans, constituting 25.6% of the pool, have investment-grade structured credit assessments. Eight loans, constituting 10.7% of the pool, have defeased and are secured by US government securities.
Moody's uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 12, compared to 15 at Moody's last review.
As of the June 2020 remittance report, loans representing 91% were current, 3% were beyond their grace period but less than 30 days late, 3% were 30 days delinquent, 1% was delinquent at 60 days and 2% were foreclosed.
Six loans, constituting 8.8% of the pool, are on the master servicer's watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.
Four loans have been liquidated from the pool, resulting in an aggregate realized loss of $11.4 million (for an average loss severity of 60%). Three loans, constituting 4.0% of the pool, are currently in special servicing. The largest specially serviced loan is the McKinley Mall Loan ($24.4 million -- 2.4% of the pool), which represents a 73.7% pari-passu portion of a $34.8 million first mortgage loan. The loan is secured by a 728,133 square foot (SF) portion of an 847,000 SF regional mall located in Buffalo, New York. The loan transferred to special servicing in April 2018. The property lost anchor tenant Macy's in 2017 and anchor tenant Bon-Ton in 2018. Current anchors include: Sears and JC Penney. Property performance has declined steadily since securitization and year end 2019 net operating income (NOI) is substantially lower than at securitization. The loan is delinquent and has taken significant appraisal reductions.
The remaining two specially serviced loans are secured by hotel properties with the Residence Inn flag. Moody's has also assumed a high default probability for two poorly performing loans, constituting approximately 2% of the pool. Moody's estimates an aggregate $28 million loss for the specially serviced and troubled loans (a 47% expected loss on average).
As of the June 12, 2020 remittance statement cumulative interest shortfalls were $3.07 million. Moody's anticipates interest shortfalls will continue because of the exposure to specially serviced loans and/or modified loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.
Moody's received full year 2019 operating results for 90% of the pool, and partial year 2020 operating results for 51% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 108%, compared to 105% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 19% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.7%.
Moody's actual and stressed conduit DSCRs are 1.29X and 0.99X, respectively, compared to 1.35X and 1.01X at the last review. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stress rate the agency applied to the loan balance.
The largest loan with a structured credit assessment is the 60 Hudson Street Loan ($155.0 million -- 15.0% of the pool), which represents a 55.4% pari-passu portion of a $280.0 million mortgage loan. The loan is secured by a 24-story, mission critical telecommunications and data center building located in the Tribeca neighborhood of New York City. The property is widely regarded as one of the world's most connected telecommunications and data center buildings. The property was 74% leased as of March 2020, compared to 75% in September 2018, and 76% in February 2017. Moody's structured credit assessment and stressed DSCR are aaa (sca.pd) and 1.81X, respectively.
The other loan with a structured credit assessment is the 625 Madison Avenue loan ($110.0 million, 10.6% of the pool), which represents a 56.4% pari-passu portion of a $195 million first mortgage loan. The loan is secured by the fee interest in a 0.81-acre parcel of land located at 625 Madison Avenue between East 58th and East 59th Street in New York City. The property is also encumbered with $195 million of mezzanine debt. The fee interest is subject to a ground lease pursuant to which the ground tenant constructed, developed and owns the improvements that sit on top of the ground. The improvements consist of a 17-story, mixed-use building, and the ground tenant's interest in the improvements is not collateral for the 625 Madison Avenue loan. Moody's structured credit assessment is aa2 (sca.pd).
The top three conduit loans represent 22.9% of the pool balance. The largest loan is the Google and Amazon Office Portfolio Loan ($150.0 million --14.5% of the pool), which represents a 34.3% pari-passu portion of a $445.9 million mortgage. The property is also encumbered by $67.8 million of mezzanine debt. The loan is secured by an office portfolio located in Sunnyvale, California. The Moffett Towers Building D (Amazon Building) is a newly constructed eight-story, Class A office building containing 357,481 SF. It is part of a seven-building campus. A2Z Development, a wholly owned subsidiary of Amazon, will use the space for design and product development for the Kindle e-reader. The Google Campus is comprised of four, four-story, Class A office buildings totaling 700,328 SF, which is part of a six-building office campus known as Technology Corners. Moody's LTV and stressed DSCR are 108% and 0.94X, respectively, compared to 110% and 0.92X at the last review.
The second largest loan is the Highland Hills Apartments Loan ($49.4 million -- 4.8% of the pool), which is secured by an 826-unit student housing property located in Mankato, Minnesota. The property was constructed in three separate phases between 1963 and 2011. The property is located directly across from Minnesota State University. The property was 86% leased as of December 2019 compared to 90% in September 2018, 83% in September 2017 and 98% at securitization. Property performance has deteriorated since securitization, with a decline in NOI and occupancy. Moody's LTV and stressed DSCR are 125% and 0.87X, respectively, compared to 106% and 0.91X at the last review.
The third largest loan is the 175 West Jackson Loan ($37.9 million -- 3.7% of the pool), which is secured by a Class A, 22-story office building totaling 1.45 million SF and located within the CBD of Chicago, Illinois. The loan had transferred to special servicing March 2018 for imminent monetary default. The loan was assumed by Brookfield Property Group as the new sponsor, in connection with the purchase of the property. The loan returned to the master servicer in August 2018. Moody's LTV and stressed DSCR are 122% and 0.80X, respectively, compared to 113% and 0.86X at the last review.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Tulay Sangiray Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Romina Padhi VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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