CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings for Deutsche Bank Securities, Inc.'s COMM 2014-LC17 commercial mortgage trust pass-through certificates. In addition, the Rating Outlook on four classes was revised to Negative from Stable. A detailed list of rating actions follows at the end of this release.
KEY RATING DRIVERS
The Outlook revisions follow the transfer of three loans to special servicing since the last rating action. These loans represent 2.7% of the current pool balance, the largest of which is the Eagle Ford loan (1.5% of the pool). This loan is secured by a portfolio of three limited service hotels: Hampton Inn & Suites Cotulla, Hampton Inn & Suites Pleasonton, and La Quinta Pearsall, located in close proximity to the Eagle Ford Shale in southern Texas. The hotels were built between 2012 and 2013. The most recent oil boom saw a significant increase in hotel and multifamily development in the local region, and the subsequent decline in oil prices has led to mass layoffs and decreased spending in the area. At securitization, the subject portfolio's average occupancy was 77%. As of September 2015, the overall occupancy had dropped to 67%, and it is expected that the YE2015 statements will indicate a further decline. The loan transferred to special servicing in February 2016 and is now 90 days delinquent. A workout strategy has not yet been identified, and there is no updated appraisal value available.
The other two loans in special servicing do not individually represent more than 0.9% of the pool. The loans, Georgia Multifamily Portfolio and Cincinnati Portfolio Pool B, are collateralized by class C multifamily properties and are both more than 90 days delinquent.
Fitch is also monitoring the third largest loan, 80 and 90 Maiden Lane (7.4% of the pool) for changes in performance. The loan is secured by two adjacent buildings located at 80 and 90 Maiden Lane in New York City. The collateral consists of 522,918 square feet (sf) (94.7%) of office space and 29,146 sf (5.3%) of retail space. The largest tenant, NYC Department of Investigation, executed an early renewal on its space (19.5% net rentable area [NRA]) in December 2014, extending lease terms to July 2025. The second largest tenant, Office of Child & Family Services, also renewed the lease on its space (8.3% NRA) in January through 2020. Although occupancy has remained stable since issuance, the reported YE2015 net operating income (NOI) represents a 23% decline from the Fitch issuance figure. Based on the servicer's operating statement analysis report (OSAR), this is due to a combination of decreased reimbursements and increased expenses. The loan is interest-only (IO) for the full term, and the NOI debt service coverage ratio (DSCR) on an IO basis was reported to be 1.20x.
Fitch modeled losses of 5.9% of the remaining pool balance; expected losses on the original pool balance total 5.8%. As the transaction is in its first two years of issuance and 2.7% of the pool is in special servicing, the surveillance criteria were applied in determining rating actions. Although very little change has occurred in credit enhancement since issuance, there was one instance of variance from criteria related to class D where Fitch's surveillance criteria would indicate that a downgrade is possible. Fitch determined that downgrades are not warranted at this time in the cycle of the deal, as seasoning is very limited, and there is a sufficient amount of uncertainty surrounding the workout of the specially serviced loans and ongoing performance of the largest watchlisted loan.
RATING SENSITIVITIES
Fitch has revised the Outlook of classes E and F to Negative from Stable. The Outlooks of the notional classes X-D and X-E have also been revised to Negative from Stable, as the notional balance of these classes are tied to the outstanding principle balance of classes E and F, respectively. The Negative Outlooks indicate future downgrades to these classes are possible; however, Fitch will continue monitoring the deal, and the above-mentioned loans in particular, for further developments before determining whether or not downgrades are warranted. Rating Outlooks for the remaining classes remain Stable due to the otherwise stable performance of the pool. Upgrades, while not likely in the near term, are possible with increased credit enhancement and sustained improvement to the pool's credit metrics.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch affirms and revises the Rating Outlook on the following classes:
--$29.3 million class E at 'BB-sf', Outlook to Negative from Stable;
--$12.4 million class F at 'B-sf', Outlook to Negative from Stable;
--$29.3 million* class X-D at 'BB-sf', Outlook to Negative from Stable;
--$12.4 million* class X-E at 'B-sf', Outlook to Negative from Stable.
Fitch affirms the following classes as indicated:
--$39.4 million class A-1 at 'AAAsf', Outlook Stable;
--$227.4 million class A-2 at 'AAAsf', Outlook Stable;
--$96.7 million class A-SB at 'AAAsf', Outlook Stable;
--$34.2 million class A-3 at 'AAAsf', Outlook Stable;
--$190 million class A-4 at 'AAAsf', Outlook Stable;
--$262 million class A-5 at 'AAAsf', Outlook Stable;
--$81.9 million class A-M at 'AAAsf', Outlook Stable;
--$57.2 million class B at 'AAsf', Outlook Stable;
--$44.8 million class C at 'Asf', Outlook Stable;
--$0 class PEZ at 'Asf', Outlook Stable;
--$91.1 million class D at 'BBB-sf', Outlook Stable;
--$930.6 million* class X-A at 'AAAsf', Outlook Stable;
--$102 million* class X-B at 'Asf', Outlook Stable;
--$91.1 million* class X-C at 'BBB-sf', Outlook Stable.
*Notional and interest-only.
Fitch does not rate the class G, H, X-F and X-G certificates. The class A-M, B and C certificates may be exchanged for class PEZ certificates and vice versa.
Additional information is available at www.fitchratings.com.
Applicable Criteria
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395
Related Research
COMM 2014-LC17 Mortgage Trust -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=776869
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003526
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003526
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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