DBRS Morningstar Assigns Ratings to Morgan Stanley Capital I Trust 2015-XLF2

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Commercial Mortgage Pass-Through Certificates, Series 2015-XLF2 issued by Morgan Stanley Capital I Trust 2015-XLF2 (the Issuer) as follows:

-- Class SNMA at AA (high) (sf)
-- Class SNMB at A (sf)
-- Class SNMC at BB (sf)
-- Class SNMD at B (low) (sf)

All trends are Negative because of the loan’s specially serviced status and possible negative credit degradation absent a timely resolution to the assets in addition to the negative impact of the Coronavirus Disease (COVID-19) on the retail sector.

These certificates are currently also rated by DBRS Morningstar’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about August 7, 2020. In accordance with MCR’s engagement letter covering these certificates, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at www.morningstarcreditratings.com.

On March 1, 2020, DBRS Morningstar finalized its “North American Single-Asset/Single-Borrower Ratings Methodology” (the NA SASB Methodology), which presents the criteria for which ratings are assigned to and/or monitored for North American single-asset/single-borrower (NA SASB) transactions, large concentrated pools, rake certificates, ground lease transactions, and credit tenant lease transactions. For further information on the NA SASB Methodology, please see the press release dated March 1, 2020, on the DBRS Morningstar website at www.dbrsmorningstar.com.

The subject rating actions are the result of the application of the NA SASB Methodology in conjunction with the “North American CMBS Surveillance Methodology,” as applicable. Qualitative adjustments were not made to the final loan-to-value (LTV) sizing benchmarks used for this rating analysis.

The subject transaction originally comprised two groups of certificates, each of which only represented an interest in the corresponding trust asset (one such trust asset is the remaining loan). The Ashford Full Service II Portfolio certificates were retired in June 2018 upon full repayment of the loan. The remaining Starwood National Mall Portfolio certificates represent an interest in the Starwood National Mall Portfolio loan.

The Starwood National Mall Portfolio loan had an original balance of $161.0 million trust balance with an additional $77.0 million of non-trust subordinate debt. The loan was structured with an original term of 36 months with two one-year extension options. The sponsor used the loan proceeds and $104.9 million of additional sponsor equity to purchase the properties, pay closing costs, and fund upfront reserves.

The loan is secured by the fee simple interests in three super-regional or regional malls. The Shops at Willow Bend is a two-story enclosed super-regional mall in Plano, Texas, and represented over 48% of the loan by allocated balance at closing. At closing, the property was anchored by Dillard’s, Macy’s, and Neiman Marcus (none of which were collateral for the loan) as well as a vacant Saks Fifth Avenue store. Fairlane Town Center is a two-story enclosed super-regional mall in Dearborn, Michigan. None of the mall’s anchors was collateral for the loan. Stony Point Fashion Center in Richmond, Virginia, is an open-air regional mall that was anchored by Dick’s Sporting Goods (collateral) as well as Dillard’s and Saks Fifth Avenue (both non-collateral) at closing.

The loan was structured with debt yield hurdles attached to each of the two extension options. In both 2017 and 2018, the sponsor was required to make principal paydowns to meet these hurdles and exercise the extension options; as a result, final maturity moved to November 2019. Upon final maturity, the sponsor was granted a forbearance as it sought refinancing and/or a loan modification or extension. The loan ultimately transferred to special servicing in March 2020.

The sponsor’s inability to refinance the loan was due, in part, to a precipitous drop in net cash flow (NCF) since issuance. As a result of tenant rollover and ongoing renovations at some of the properties (most notably a $95 million renovation at The Shops at Willow Bend), the servicer reported a trailing 12-month period ended November 30, 2019, NCF of $15.1 million, a -36.5% variance from the Issuer’s figure of $23.8 million at issuance.

In assigning these ratings, DBRS Morningstar relied heavily on updated appraisals provided after the loan transferred to special servicing. DBRS Morningstar assumed an aggregate value of $156.2 million based on the DBRS Morningstar As-Is Values (subject to a 10% haircut) for the Fairlane Town Center and Stony Point Fashion Center loans and the new DBRS Morningstar As-Is Value (without an additional haircut) for The Shops at Willow Bend loan. The lack of haircut to The Shops at Willow Bend value reflects potential upside to value as noted in the appraisal. DBRS Morningstar did not give additional credit for qualitative factors or diversity. This assumed value results in an LTV of 86.9% on the trust debt and 136.2% when considering the subordinate non-trust debt. The assumed value equates to a 9.7% cap rate on the servicer’s reported 2019 NCF.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for this transaction.

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes loan-level data for most outstanding CMBS transactions (including non-DBRS Morningstar-rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are the North American Single-Asset/Single-Borrower Ratings Methodology and North American CMBS Surveillance Methodology, which can be found on www.dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on www.dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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