Fitch Downgrades 4 Classes of WFRBS 2014-C22
KEY RATING DRIVERS
The downgrades are due to expected losses associated with the transaction's specially serviced loan (1.8% of the pool). Fitch applied a conservative value estimate in its analysis as an updated valuation was not available. Given the class positions within the capital structure, potential erosion in credit enhancement is not sufficient to maintain the ratings at their current levels. There were variances to criteria related to classes B and C, indicating upgrades were possible; Fitch determined that upgrades were not warranted due to limited improvement in credit enhancement and potential for higher losses on the specially serviced loan.
Fitch modeled losses of 5.2% of the remaining pool; expected losses on the original pool balance total 5.1%. The pool has experienced no realized losses to date. Fitch has designated four loans (3.5%) as Fitch Loans of Concern, which includes the one specially serviced asset (1.8%).
As of the August 2016 distribution date, the pool's aggregate principal balance has been reduced by 1.2% to $1.47 billion from $1.49 billion at issuance. No loans are defeased. Interest shortfalls are currently affecting class G. Full interest-only loans comprise 17.2% of the outstanding transaction; partial interest-only loans comprise 48.7%. All but 9.7% of the loans mature in 2024.
The largest contributor to expected losses is the specially-serviced States Addition Apartments loan, which is secured by a portfolio of three apartment complexes containing 235 units located in Dickinson, ND. The loan was transferred to special servicing in February 2016 for payment default. The property is located on the Bakken shale formation, and local employment has been severely impacted as a result of high dependency on oil and gas exploration. The property's occupancy declined to 52% as of August 2016 with average rent of $843 per unit compared to 100% and $1,496 per unit, respectively, at issuance. The most recent debt-service coverage ratio (DSCR) as of December 2015 declined to 0.60x from 1.35x. An updated valuation was not available from the special servicer.
The largest loan (10.2%) is the Bank of America Plaza loan, which is collateralized by 1,432,285-sf office building located in downtown Los Angeles. The property was constructed in 1974. The property is a class A, LEED Gold, 55-story office tower located in downtown Los Angeles. The property is 92.4% occupied as of March 2016 up from 89% at issuance. The property historically has averaged occupancy above 90% since issuance. The subject location serves as the global headquarters for the two largest tenants at the property, The Capital Group Companies and Shepard, Mullin, Richter, & Hampton LLC, which have maturities past the loan term in February 2033 and December 2024, respectively. Approximately 56% of the space rolls during the loan term with 7% rolling in 2018, 14% in 2019, 8% in 2020, 23% (which includes the 3rd largest tenant) in 2022. The most recent DSCR as of year-end (YE) 2015 is 2.45x up from 2.27x YE 2014. NOI has improved approximately 8% since issuance due to improved occupancy and increased income.
Rating Outlooks on classes A-1 through C remain Stable due to expected continued paydown and sufficient credit enhancement. Upgrades are not likely as the Negative Outlook on Class D reflects the potential for credit enhancement to erode should expected losses from the specially serviced loan increase. The Rating Outlook on class E is Stable following the downgrade. Further downgrades to classes E and F are possible should expected losses increase.
DUE DILIGENCE USAGE
No third-party due diligence was provided or reviewed in relation to this rating action.
Fitch downgrades and removes from Rating Watch Negative the following classes and assigns Recovery Estimates (REs) as indicated:
--$31.6 million class E to 'Bsf' from 'BBsf'; Outlook Stable;
--$14.9 million class F to 'CCCsf' from 'Bsf'; RE 100%.
--Interest-only X-C to 'Bsf' from 'BBsf'; Outlook Stable;
--Interest-only X-D to 'CCCsf' from 'Bsf'.
Fitch affirms the following classes as indicated:
--$40.2 million class A-1 at 'AAAsf'; Outlook Stable;
--$75.9 million class A-2 at 'AAAsf'; Outlook Stable;
--$59.9 million class A-3 at 'AAAsf'; Outlook Stable;
--$360 million class A-4 at 'AAAsf'; Outlook Stable;
--$386 million class A-5 at 'AAAsf'; Outlook Stable;
--$102.1 million class A-SB at 'AAAsf'; Outlook Stable;
--Interest-only class X-A at 'AAAsf'; Outlook Stable;
--$104.1 million class A-S at 'AAAsf'; Outlook Stable;
--$68.8 million class B at 'AA-sf'; Outlook Stable;
--$52.1 million class C at 'A-sf'; Outlook Stable.
--$111.6 million class D at 'BBB-sf''; Outlook Negative.
Fitch does not rate the interest-only class X-B, interest-only class X-E, interest-only class X-Y, or the class G certificates.