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Rating Action:

Moody's affirms five classes and downgrades two classes of WFCM 2014-LC16

20 Oct 2020

Approximately $642.3 million of structured securities affected

New York, October 20, 2020 -- Moody's Investors Service, ("Moody's") has affirmed the ratings on five classes and downgraded the rating on two classes in Wells Fargo Commercial Mortgage Trust 2014-LC16, Commercial Mortgage Pass-Through Certificates, Series 2014-LC16 as follows:

Cl. A-4, Affirmed Aaa (sf); previously on Aug 2, 2019 Affirmed Aaa (sf)

Cl. A-5, Affirmed Aaa (sf); previously on Aug 2, 2019 Affirmed Aaa (sf)

Cl. A-SB, Affirmed Aaa (sf); previously on Aug 2, 2019 Affirmed Aaa (sf)

Cl. A-S, Affirmed Aaa (sf); previously on Aug 2, 2019 Affirmed Aaa (sf)

Cl. B, Downgraded to A1 (sf); previously on Aug 2, 2019 Affirmed Aa3 (sf)

Cl. C, Downgraded to Baa3 (sf); previously on Aug 2, 2019 Affirmed A3 (sf)

Cl. X-A*, Affirmed Aaa (sf); previously on Aug 2, 2019 Affirmed Aaa (sf)

* Reflects interest-only classes

RATINGS RATIONALE

The ratings on four 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 as well as the significant credit support of the classes.

The ratings on two P&I classes were downgraded due to a decline in pool performance and higher anticipated losses driven primarily by the increase in specially serviced and troubled loans. Specially serviced loans now make up 31% of the pool, of which three loans, 24% of the pool, are secured by regional malls that are either in foreclosure or greater than 90 days delinquent. Furthermore, all three of the mall loans were experiencing declines in net operating income (NOI) prior to the coronavirus pandemic.

The ratings on one IO class was affirmed based on the credit quality of its 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 13.6% of the current pooled balance, compared to 6.2% at Moody's last review. Moody's base expected loss plus realized losses is now 10.7% of the original pooled balance, compared to 5.2% 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.

DEAL PERFORMANCE

As of the September 15, 2020 distribution date, the transaction's aggregate certificate balance has decreased by 21% to $770 million from $974 million at securitization. The certificates are collateralized by 70 mortgage loans ranging in size from less than 1% to 14.8% of the pool, with the top ten loans (excluding defeasance) constituting 50.4% of the pool. Nine loans, constituting 5.4% 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 21, compared to 22 at Moody's last review.

As of the September 2020 remittance report, loans representing 66% were current or within their grace period on their debt service payments, 3% were between 30 -- 59 days delinquent and 31% were 90 or more days delinquent or in foreclosure.

Eight loans, constituting 10.7% 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.

One loan has been liquidated from the pool, resulting in a minimal loss (for a loss severity of 0.1%). Eight loans, constituting 31% of the pool, are currently in special servicing. Six of the specially serviced loans, representing 29.7% of the pool, have transferred to special servicing since March 2020.

The largest specially serviced loan is the Woodbridge Center Loan ($113.7 million -- 14.8% of the pool), which represents a pari-passu portion of a $236.8 million senior mortgage loan. The loan is secured by a 1.1 million square foot (SF) component of a two-story, regional mall in Woodbridge, New Jersey. The loan is sponsored and the property is managed by Brookfield Properties. The mall anchors now include Macy's, Boscov's, JC Penney, and Dick's Sporting Goods. Two anchor spaces are currently vacant following the December 2019 closure of Lord and Taylor (120,000 SF) and the April 2020 closure of Sears (274,100 SF). Macy's, JC Penny and the former Lord & Taylor space are not included as collateral for the loan. Other major tenants include Boscov's, Dick's Sporting Goods and Dave & Busters. As of June 2020 rent roll, the collateral was 71% occupied, compared to overall 97% in December 2019 and 97% at securitization. The inline occupancy was 88%, compared to 85% in March 2019. The loan has amortized 5.3% since securitization after an initial 3 year interest only period. The property's performance had declined through year-end 2019 and the 2019 net operating income (NOI) was nearly 17% lower than in 2014. The property re-opened in June after a temporary closure as a result of the coronavirus pandemic. The loan transferred to special servicing in June 2020 due for imminent monetary default stemming from the impacts of COVID-19 on the property. The property also faces significant competition with seven competitive regional and super regional centers located within a 20 miles radius of the property. The loan is last paid through its April 2020 payment date and the special servicer indicated a pre-negotiation letter has been executed and discussions are ongoing.

The second largest specially serviced loan is the Montgomery Mall Loan ($54.0 million -- 7.0% of the pool), which represents a pari-passu portion of a $100 million first mortgage loan. The loan is secured by an approximately 580,000 SF component of a 1.1 million SF regional mall in North Wales, Pennsylvania, a northern suburb of Philadelphia. The property is currently anchored by Macy's, JC Penney, Wegmans, and Dick's Sporting Goods. One anchor space (169,000 SF) is now vacant following the February 2020 closure of Sears. As of December 2019, the total mall and the inline space were 87% and 72% occupied, respectively, compared to 92% and 67% as of December 2018. However, total mall occupancy falls to 71% accounting for the Sears vacancy. Property performance had deteriorated through year-end 2019 and the 2019 NOI was approximately 26% lower than in 2014. The property benefits from an infill location 20 miles northwest of Philadelphia, however, competition exists from six competitive regional and super regional centers located within a 20 miles radius of the property. The property was temporarily closed from March 14th to June 26th as a result of the coronavirus pandemic and the loan transferred to special servicing in June 2020 due to imminent default. The loan is last paid through its May 2020 payment date and special servicer commentary indicates the sponsor, Simon Property Group (Simon), is unwilling to inject additional funds into loan but is continuing to manage property and a cash lockbox is being implemented.

The third largest specially serviced loan is the Weatherford Ridge loan ($29.4 million -- 3.8% of the pool), which is secured by a power center located in Weatherford, Texas, approximately 25 miles west of downtown Fort Worth and positioned at the intersection of I-20 and Main Street. The property was 94% leased as of June 2020. Tenants at the property consist of a mix of national retailers, including Belk, TJ Maxx, Bed Bath & Beyond, and Michaels. A non-collateral JC Penney serves as a shadow anchor at the property and this location has not appeared on any store closing lists. Bed, Bath & Beyond has a co-tenancy provision related to JC Penney going dark. The loan transferred to special servicing in July 2020 per the borrower's request and the loan was over 60 days delinquent. The special servicer indicated they are actively discussing a potential loan modification. The loan is last paid through its April 2020 payment date.

The remaining five specially serviced loans are primarily secured by retail and hotel properties.

Moody's has also assumed a high default probability for two poorly performing loans secured by hotel properties, constituting 2.5% of the pool. The largest troubled loan is the Hampton Inn Hallandale (2.0% of the pool) which had already experienced declining revenue and NOI through year-end 2019. Moody's has estimated an aggregate loss of $91.0 million (a 35% expected loss on average) from these specially serviced and troubled loans.

Moody's received full year 2019 operating results for 89% of the pool, and partial year 2020 operating results for 83% of the pool (excluding specially serviced and defeased loans). Moody's weighted average conduit LTV is 94%, compared to 108% 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 11% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.8%.

Moody's actual and stressed conduit DSCRs are 1.64X and 1.21X, respectively, compared to 1.53X and 1.08X 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 top three conduit loans represent 14% of the pool balance. The largest loan is the Pacific Design Center Loan ($49.0 million -- 6.4% of the pool), which represents a pari-passu portion of a $142 million first mortgage loan. The property is also encumbered with $20 million of mezzanine debt. The loan is secured by a 1.0 million SF component of a 1.4 million SF mixed-use facility containing design and office space located in West Hollywood, California. The property is comprised of three buildings known as the Blue Building, the Green Building and the Red Building, due to their respectively colored glass exteriors. The Blue Building, almost fully comprised of design showroom space, consists of a 717,914 SF, 6-story structure constructed in 1976. The Green Building consists of a 385,088 SF, 9-story office (278,813 SF) and showroom facility (106,275 SF) constructed in 1988. The Red Building consists of a 420,000 SF office building constructed in 2012. Only the Blue Building and Green Building are contributed as collateral for the loan. In addition to the showroom and office space, the property also features a private branch of the Los Angeles Museum of Contemporary Art, a fitness center, a 388-seat theater, a 1,900 space sub-grade parking garage, as well as several public spaces, atriums and courtyards. The property was initially built as a dedicated design center, but failed to achieve stabilized occupancy due to its over-capacity of showroom space. As of June 2020, the collateral was 38% leased, compared to 66% leased in March 2019 and 55% in March 2018. Occupancy fell in 2017 following major tenant IPG departing their space. IPG was parent to several other tenants, which also vacated their spaces. The loan remained current as of its September 2020 remittance date and has amortized 2% since securitization. The Moody's LTV and stressed DSCR are 117% and 0.92X, respectively, compared to 119% and 0.91X at the last review.

The second largest loan is the Purgatory Creek Apartments Loan ($31.0 million -- 4.0% of the pool), which is secured by a multifamily property located in San Marcos, Texas, approximately 28 miles south of the Austin CBD and two miles from Texas State University. Common area amenities include a two-tier resort style pool with spa and steam room/sauna, 24-hour fitness center, clubhouse with full kitchen and bar area, business center, and a laundry room in every building. As of June 2020, the property was 89% leased, compared to 93% leased as of December 2018. The year-end 2019 NOI declined slightly from 2018 as a result of lower revenue and the loan has amortized 2% since securitization. Moody's LTV and stressed DSCR are 118% and 0.78X, respectively, compared to 113% and 0.81X at the last review.

The third largest loan is the Harlequin Plaza Loan ($28.0 million -- 3.6% of the pool), which is secured by two adjacent Class-B office buildings located in Greenwood Village, Colorado, approximately 14 miles southeast of the Denver CBD. The buildings, built in 1980 and renovated in 2013, are three and four stories tall. On-site amenities include a fitness center with showers and locker room, two classroom style conference rooms, and a deli. The property is 93% occupied as of June 2020, compared to 83% in December 2018. Property performance declined in 2019, but is expected to improve in 2020 as a result of recent leasing activity. Through the first three months of 2020, the NOI DSCR was 2.75X. The property's three largest tenants represent an aggregate 52% of the property's square footage and do not have lease expirations prior to December 2022. The loan is interest only for its entire term and Moody's LTV and stressed DSCR are 98% and 1.07X, respectively, compared to 97% and 1.07X at the last review.

REGULATORY DISCLOSURES

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_1133569.

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.

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.

Rhett Terrell
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

No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY'S (COLLECTIVELY, "PUBLICATIONS") MAY INCLUDE SUCH  CURRENT OPINIONS. MOODY'S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY'S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY'S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS ("ASSESSMENTS"), AND  OTHER OPINIONS INCLUDED IN MOODY'S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY'S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY'S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY'S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND  PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY'S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES  ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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