S&P: CGBAM Commercial Mortgage Trust 2014-HD Ratings Affirmed On Seven Classes
The affirmations on the principal - and interest-paying certificate classes follow our analysis of the transaction primarily using our criteria for ratingU. S. and Canadian CMBS transactions. Our analysis included reviewing the two full-service hotel properties totaling 1,070 rooms in Manhattan and Miami thatserve as collateral securing the $241.4 million floating-rate interest-only (IO) mortgage loan. We also considered the deal structure and liquidity available to the trust.
The affirmations further reflect our expectation that the available credit enhancement for the classes will be within our estimate of the credit enhancement required for the current ratings and our views regarding the collateral's current and future performance.
We affirmed our ratings on the class X-CP and X-NCP IO certificates based on our criteria for rating IO securities, in which the ratings on the IO securities would not be higher than that of the lowest rated reference class. The notional balances of classes X-CP and X-NCP reference classes A, B, and C.
The analysis of stand-alone (single-borrower) transactions is predominantly a recovery-based approach that assumes a loan default. Using this approach, our property-level analysis included a revaluation of the 876-room full-service Hudson Hotel in Manhattan and the 194-room full-service Delano Hotel in Miami that secure the trust's mortgage loan.
Our analysis also considered the volatile collateral performance, specificallythe significant declines in revenue per available room (RevPAR) and net cash flow (NCF) during the economic downturn in 2009, as well as observed declines in RevPAR and NCF for both properties as of the trailing 12 months ended March31, 2016. It is our understanding from the master servicer that the recent reported performance declines are due to supply growth and increased competition. We divided our sustainable in-place NCF by an 8.50% capitalization rate to determine our expected-case value. This yielded an overall 74.7% S&P Global Ratings loan-to-value ratio on the trust balance.
According to the Aug. 15, 2016, trustee remittance report, the IO mortgage loan has a $241.4 million trust balance, down from $257.5 million at issuance. In addition, there is a subordinate companion loan, as evidenced by two pari passu promissory notes totaling $39.8 million. The borrowers' equity interest in the whole loan secures $140.6 million of mezzanine debt. The loan was originally scheduled to mature on Feb. 9, 2016, and had three one-year extension options. The loan's maturity was extended to Feb. 9, 2017, after theborrower exercised one of its extension options and paid down $16.1 million ofthe trust balance.
The IO loan pays a floating rate per year equal to LIBOR plus applicable spreads ranging from 3.02%-4.27% (a weighted average spread of 3.60% based on the current outstanding trust balance). According to the transaction documents, the borrowers will pay the special servicing fees, work-out fees, liquidation fees, and costs and expenses incurred from appraisals and inspections the special servicer conducts. To date, the trust has not incurredany principal losses.
We based our analysis partly on a review of each property's historical NCF forthe trailing 12 months ended March 31, 2016, and years ended Dec. 31, 2015, 2014, and 2013 that the master servicer provided to determine our opinion of asustainable cash flow for the lodging properties. The master servicer, Wells Fargo Bank N. A., reported an overall debt service coverage of 2.82x on the trust balance for the trailing 12 months ended March 31, 2016.
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