Morningstar DBRS Downgrades Credit Ratings on Two Classes of Wells Fargo Commercial Mortgage Trust 2015-LC20

DBRS, Inc. (Morningstar DBRS) downgraded its credit ratings on two classes of Commercial Mortgage Pass-Through Certificates, Series 2015-LC20 issued by Wells Fargo Commercial Mortgage Trust 2015-LC20 as follows:

-- Class D to CCC (sf) from BB (sf)
-- Class E to C (sf) from CCC (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class C at A (low) (sf)
-- Class F at C (sf)
-- Class X-B at A (sf)
-- Class X-E at CCC (sf)
-- Class PEX at A (low) (sf)

The trends on Classes C, X-B, and PEX are Negative. Classes D, E, F, and X-E have credit ratings that do not typically carry trends in commercial mortgage-backed securities (CMBS) transactions.

The credit rating downgrades reflect an increase in Morningstar DBRS' projected losses for the transaction, which is in winddown. There are eight loans remaining in the pool, all of which are past their original scheduled maturities; Morningstar DBRS analyzed each of the remaining loans in a liquidation scenario to test the recoverability of the remaining classes. Morningstar DBRS' liquidation assumptions resulted in cumulative losses of $46.7 million, eroding the entirety of the balances on Classes F and G, as well as a majority of the balance on Class E, supporting the credit rating downgrades to Classes D and E.

The Negative trend on Class C reflects the increasing probability that ongoing interest shortfalls will exceed Morningstar DBRS' shortfall tolerance ceiling of two periods for the A (sf) credit rating category. With the May 2025 remittance, cumulative interest shortfalls increased to approximately $3.8 million, up from $2.2 million at the last credit rating action in July 2024. Class D was shorted full interest in April 2025 and has not received full interest between through the May 2025 remittance. Morningstar DBRS expects shortfalls to soon exceed the Morningstar DBRS shortfall tolerance ceiling for the BB (sf) credit rating category of six periods for Class D, further supporting the credit rating downgrade for this class; and, Morningstar DBRS expects interest shortfalls to increase to Class C when the Actuant HQ loan (Prospectus ID#24, 8.8% of the pool), secured by a dark suburban office property in Menomonee Falls, Wisconsin, ultimately transfers to special servicing.

Morningstar DBRS' wind down scenario, based on conservative haircuts to the most recent appraisal values for the remaining loans in the pool, indicates that the senior investment-grade rate class is well insulated from liquidated losses, supporting the credit rating confirmations on Class C and the corresponding exchangeable Class PEX.

Since the previous credit rating action, 52 loans have successfully repaid from the trust and one loan that was previously in special servicing, Holiday Inn Express - Lithia Springs (Prospectus ID#52), was liquidated from the trust with no realized loss. As of the May 2025 remittance, the current trust balance was $128.9 million, representing a collateral reduction of 84.5% from issuance. Of the remaining loans, three loans representing 39.7% of the pool are secured by office collateral, followed by lodging at 27.7%. There are two loans remaining in the trust that are not in special servicing; however, given each failed to repay at scheduled maturity, Morningstar DBRS also analyzed these loans with liquidation scenarios.

The largest contributor to Morningstar DBRS' liquidated losses is One Monument Place (Prospectus ID#3, 25.9% of the pool), a 222,477-square-foot (sf) Class A office property in Fairfax, Virginia. The occupancy rate at the subject increased to 50.0% as of YE2024, up from 34.0% as of YE2023, but remains significantly below issuance when the occupancy rate was above 90.0%. The property is in a soft submarket in Fair Oaks, with Reis, Inc. reporting an elevated Q1 2025 vacancy rate of 27.7%, which is expected to persist over the next few years. The property was recently appraised in February 2025 appraisal for $16.3 million, down significantly from the March 2024 and issuance appraisal values of $22.0 million and $60.0 million, respectively. The loan, which had an initial maturity date in April 2020, has been granted several maturity extensions to April 2025 and was modified, converting the loan to interest-only (IO) with the borrower contributing $5.0 million in principal paydown in exchange. The loan transferred to special servicing in May 2025 after not repaying at its maturity; the borrower has requested another extension, which is being evaluated by the special servicer. Given the low appraisal value and soft submarket, Morningstar DBRS analyzed this loan in a liquidation scenario, applying a 30% haircut to the February 2025 appraised value, resulting in an implied loss approaching $29.0 million and a loss severity in excess of 85.0%.

The second-largest loan in special servicing, University of Delaware Hotel Portfolio (Prospectus ID #4, 22.5% of the pool balance), is secured by two adjacent hotels totaling 245 keys and located near the main campus of the University of Delaware in Newark, Delaware. The loan failed to repay at its anticipated repayment date (ARD) in March 2022 and transferred to special servicing in January 2023 for imminent monetary default. As of the May 2025 remittance, a receiver is in place and is preparing to market the properties for sale in the summer of 2025. Performance of the collateral has suffered since the onset of the pandemic with the debt service coverage ratio (DSCR) reporting below break-even for the last several years and negative as of YE2024. According to the STR report for the trailing 12-month period (T-12) ended September 30, 2024, the weighted-average (WA) occupancy rate, average daily rate, and revenue per available room (RevPAR) were reported at 70.7%, $154.92, and $109.24, respectively. This is generally in line with the T-12 ended March 31, 2024, figures but still below pre-pandemic levels when the YE2019 RevPAR was reported at $115.64. Based on the updated March 2025 appraisal, the subject was valued at $34.8 million, down from the November 2023 and issuance values of $40.4 million and $49.0 million, respectively. The franchise agreements at both of the properties are to expire in May 2026. Given the portfolio's lackluster performance, value decline, and the likelihood that equity would need to be contributed to the properties to maintain brand standards, Morningstar DBRS analyzed this loan based on a 30% haircut to the March 2025 appraised value, resulting in an implied loss over $6.8 million and a loss severity of nearly 25.0%.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025): https://dbrs.morningstar.com/research/454196.

Classes X-B and X-E are IO certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

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

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

The principal methodology is North American CMBS Surveillance Methodology (February 28, 2025): https://dbrs.morningstar.com/research/448963.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS, Inc.
22 West Washington Street
Chicago, IL 60602 USA
Tel. +1 312 332-3429

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology (April 09, 2025)/North American CMBS Insight Model v 1.3.0.0
https://dbrs.morningstar.com/research/451739

-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024)
https://dbrs.morningstar.com/research/439702

-- Legal Criteria for U.S. Structured Finance (December 3, 2024)
https://dbrs.morningstar.com/research/444064

-- North American Commercial Mortgage Servicer Rankings (August 23, 2024): https://dbrs.morningstar.com/research/438283

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.