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Rating Action: Moody's affirms six classes of MSBAM 2014-C18
Global Credit Research - 11 Jan 2021
Approximately $506.4 million of structured securities affected
New York, January 11, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on six classes in Morgan Stanley Bank of America Merrill Lynch Trust 2014-C18, Commercial Mortgage Pass-Through Certificates as follows:
Cl. A-SB, Affirmed Aaa (sf); previously on December 9, 2019 Affirmed Aaa (sf)
Cl. A-3, Affirmed Aaa (sf); previously on December 9, 2019 Affirmed Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on December 9, 2019 Affirmed Aaa (sf)
Cl. A-S, Affirmed Aaa (sf); previously on December 9, 2019 Affirmed Aaa (sf)
Cl. B, Affirmed Aa2 (sf); previously on December 9, 2019 Upgraded to Aa2 (sf)
Cl. X-A*, Affirmed Aaa (sf); previously on December 9, 2019 Affirmed Aaa (sf)
* Reflects interest-only class
The ratings on the 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 rating on the IO class was affirmed based on the credit quality of the referenced classes.
The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of commercial real estate from the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. 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.
We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.
Moody's rating action reflects a base expected loss of 12.7% of the current pooled balance, compared to 6.4% at Moody's last review. Moody's base expected loss plus realized losses is now 8.5% of the original pooled balance, compared to 4.5% 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 principal methodology used in rating all classes except interest-only classes was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778. The methodologies used in rating interest-only classes were "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in September 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1244778 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 *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
As of the December 17, 2020 distribution date, the transaction's aggregate pooled certificate balance has decreased by 33% to $691.0 million from $1.0 billion at securitization. The certificates are collateralized by 52 mortgage loans ranging in size from less than 1% to 14% of the pool, with the top ten loans (excluding defeasance) constituting 57% of the pool. One loan, constituting 14% of the pool, has an investment-grade structured credit assessment. Five loans, constituting 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 18, compared to 19 at Moody's last review.
As of the December 2020 remittance report, loans representing 78% were current or within their grace period on their debt service payments, 8% were beyond their grace period but less than 30 days delinquent, 6% were more than 90 days delinquent and 8% were REO or in foreclosure.
Five loans, constituting 12% 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.
No loans have been liquidated from the pool. Eight loans, constituting 22% of the pool, are currently in special servicing. Five of the specially serviced loans, representing 11% of the pool, have transferred to special servicing since March 2020.
The largest specially serviced loan is the Ashford Hospitality Portfolio C1 Loan ($55.3 million -- 8.0% of the pool), which is secured by three hotels: the Residence Inn located in Orlando, Florida, an extended-stay hotel; the Courtyard by Marriott located in Ft. Lauderdale, Florida, a limited-service hotel; and the Courtyard located in Louisville, Kentucky, a full-service hotel. In aggregate, the portfolio contains 534 guestrooms. The portfolio operates subject to franchise agreements with Marriott International, Inc. for Residence Inn -- Lake Buena Vista and the Courtyard Louisville Airport, which expire in May 2021 and September 2031, respectively. The Courtyard by Marriott -- Ft. Lauderdale Weston operates without a franchise agreement. At securitization, the property was also encumbered by $8.44 million of mezzanine debt held outside the trust. The loan transferred to special servicing in April 2020 for imminent monetary default as a result of the significant impact on the portfolio's operations due to the coronavirus pandemic. Through year-end 2019 the property's performance was below expectation at securitization due to slightly lower revenues and higher operating expenses. The year-end 2019 NOI DSCR was 2.02X compared to 2.42X in 2018. The loan had previously been up to 60 days delinquent, however, the Mezzanine lender completed a UCC foreclosure in September 2020 and has taken ownership of the properties. As of the December 2020 remittance the loan was paid through November 2020 payment date.
The second largest specially serviced loan is the Louisiana and Mississippi Retail Portfolio Loan ($25.8 million -- 3.7% of the pool), which is secured by which is secured fifteen retail properties, totaling 471,982 square feet (SF) and located in various cities in Louisiana (14) and Mississippi (1). Major tenants at these properties include Dollar Tree, Rent-A-Center, Family Dollar, Game Stop and O'Reilly Auto Parts as well as many other tenants. As of May 2020, the combined occupancy was 78%, compared to 81% in December 2019. The loan transferred to special servicing in October 2019 due to maturity default. Property performance has declined since 2016 as a result of lower rental revenue and occupancy and the June 2020 NOI DSCR was 0.91X, compared to 1.19X in year-end 2019. The loan is last paid through September 2020 and the Borrower has been unable to refinance the loan. The special servicer is currently pursing legal remedies and a receiver is in-place.
The third specially serviced loan is the Ashford Hospitality Portfolio C3 Loan ($23.3 million -- 3.4% of the pool), which is secured by three limited-service hotels in Georgia: Springhill Suites Atlanta Buford Mall of Georgia in Buford GA, Hampton Inn Atlanta Mall of Georgia in Buford GA and Hampton Inn Atlanta Lawrenceville in Lawrenceville, GA. In aggregate, the portfolio contains 274 guestrooms. Springhill Suites Atlanta Buford Mall of Georgia has a franchise agreement with Marriott International, Inc. that currently expires on October 21, 2021. The Hampton Inn Atlanta Mall of Georgia and the Hampton Inn Atlanta Lawrenceville have a franchise agreement with Promus Hotels, Inc., a subsidiary of Hilton Hotels Corporation, that currently expires on February 7, 2020 and September 30, 2028, respectively. The loan transferred to special servicing in April 2020 for imminent monetary default as a result of the impact on the portfolio's operations from the coronavirus pandemic. Through year-end 2019 the property's performance was below expectation at securitization due to slightly lower revenues and higher operating expenses. The year-end 2019 NOI DSCR was 1.73X, compared to 2.15X in 2018. Furthermore, as a result of the pandemic the NOI DSCR declined to 0.02X for the trailing twelve-month period ending June 2020. As of the December 2020 remittance report, the loan was paid through its April 2020 payment date. The special servicer has indicated they have had ongoing discussions regarding payment relief terms to address the effects of the pandemic on collateral performance.
The remaining five specially serviced loans are secured by a either hotel or retail properties that were either more than 90 days delinquent, in foreclosure or already REO.
Moody's has also assumed a high default probability for one poorly performing loan, constituting 1.2% of the pool, which is secured by a mixed-use property in Greenwich, CT that has exhibited recent decline in occupancy and revenue. Moody's has estimated an aggregate loss of $62 million (a 38% expected loss on average) from these troubled and specially serviced loans.
The credit risk of loans is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by each loan's DSCR, and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by each loan's loan-to-value ratio, referred to as the Moody's LTV or MLTV. As described in the CMBS methodology used to rate this transaction, we make various adjustments to the MLTV. We adjust the MLTV for each loan using a value that reflects capitalization (cap) rates that are between our sustainable cap rates and market cap rates. We also use an adjusted loan balance that reflects each loan's amortization profile. The MLTV reported in this publication reflects the MLTV before the adjustments described in the methodology.
Moody's received full year 2019 operating results for 97% of the pool, and full or partial year 2020 operating results for 89% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 108%, compared to 107% 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 18% 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 1.55X and 1.04X, respectively, compared to 1.54X and 1.04X 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 loan with a structured credit assessment is the 300 North LaSalle Loan ($95.3 million -- 13.8% of the pool), which represents a pari-passu portion of a $219.7 million senior mortgage loan. The loan is secured by a 60-story, Class-A office tower located in the River North submarket of Chicago, Illinois. The loan is also structured with a subordinate B Note of $244.4 million which supports the non-pooled rake classes that are not rated by Moody's. The property was constructed in 2009 and contains approximately 1.3 million square feet (SF) of rentable area. The largest tenant is Kirkland and Ellis LLP, representing 51% of the net rentable area, with a lease expiration in February 2029 and serves as Kirkland and Ellis's global headquarters. The property was 96% leased as of June 2020, compared to 95% at last review. The loan has now amortized nearly 5% since securitization after an initial interest only period. Moody's structured credit assessment and stressed DSCR are aaa (sca.pd) and 1.95X, respectively, compared to aaa (sca.pd) and 1.87X, at last review.
The top three conduit loans represent 19% of the pool balance. The largest loan is the Huntington Oaks Shopping Center Loan ($60.5 million -- 8.8% of the pool), which is secured by a 252,526 SF component of a 328,351 SF anchored retail development located in Monrovia, California, (approximately 20 miles northeast of the Los Angeles CBD). The non-collateral component is represented by an approximately 76,000 SF box occupied by Kohl's. The improvements for the Huntington Oaks Shopping Center property were built in 1986 and have gone through periodic renovations. As of the March 2020 rent roll, the collateral was 77% leased and the total property was 83% leased. The loan has been on the watchlist since early 2018, when Toys R Us (approximately 43,000 SF) declared bankruptcy and subsequently vacated. The former Toys R Us space remains dark. The property is also encumbered by $10.5 million of mezzanine debt held outside the trust. The property's NOI has declined as a result of the lower occupancy. The loan is interest only for its entire term and remains current as of the December 2020 remittance date. Moody's LTV and stressed DSCR are 151% and 0.64X, respectively, compared to 138% and 0.71X at Moody's last review.
The second largest loan is the 250 Munoz Rivera Loan ($37 million -- 5.4% of the pool), which is secured by an approximate 326,000 SF office tower located in San Juan, Puerto Rico. The property is situated within the Hato Rey submarket, the financial district of Puerto Rico. As of the December 2019 rent roll, the property was 92% leased, compared to 89% in December 2018. The largest tenants include UBS Financial Servicers (19.5% of NRA; lease expiration in November 2022) and O'Neill & Borges LLC (11.3% of NRA, lease expiration August 2023). Property performance has improved since securitization due to higher rental revenues. The loan benefits from amortization and has amortized over 7% since securitization. Moody's LTV and stressed DSCR are 89% and 1.36X, respectively, compared to 87% and 1.33X at the last review.
The third largest loan is the Aspen Heights -- Murfreesboro Loan ($32.7 million -- 4.7% of the pool), which is secured by a 235-unit (750-bed) student-housing complex located near Middle Tennessee University in Murfreesboro, Tennessee. The property improvements are comprised of 162 two-story cottage style houses with 2-4 bedrooms. The Property offers a dedicated shuttle service for students attending Middle Tennessee State University. The complex was developed in 2013 and is less than two miles south of the main campus. As of January 2020, the property was 99% leased. The July 2019 NOI declined year over year due to lower revenues but was in-line with expectations at securitization. However, for the six-month period ending January 2020, the NOI DSCR has further declined to 1.19X from 1.45X in year-end 2019. The loan had an initial interest only period and has now amortized 3% since securitization. Moody's LTV and stressed DSCR are 129% and 0.80X, respectively, compared to 124% and 1.79X 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_1243406.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.
Suzanna Sava Vice President - Senior 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 Matthew Halpern 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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