Fitch Assigns Final Ratings to FREMF 2015-K48 MF Mtge P-T Ctfs & Freddie Mac SPC Series K-048
September 24, 2015 | By Business Wire News
NEW YORK
Fitch Ratings has assigned the following ratings and Rating Outlooks for FREMF 2015-K48 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-048.
FREMF 2015-K48 Multifamily Mortgage Pass-Through Certificates
–$161,400,000 class A-1 ‘AAAsf’; Outlook Stable;
–$1,120,501,000 class A-2 ‘AAAsf’; Outlook Stable;
–$1,281,901,000* class X1 ‘AAAsf’; Outlook Stable;
–$1,281,901,000* class X2-A ‘AAAsf’; Outlook Stable;
–$130,580,000 class B ‘BBB+sf’; Outlook Stable;
–$39,235,000 class C ‘BBB-sf’; Outlook Stable.
Freddie Mac Structured Pass-Through Certificates, Series K-048
–$161,400,000 class A-1 ‘AAAsf’; Outlook Stable;
–$1,120,501,000 class A-2 ‘AAAsf’; Outlook Stable;
–$1,281,901,000* class X1 ‘AAAsf’; Outlook Stable.
*Notional amount and interest-only.
Fitch did not rate the following classes of FREMF 2015-K48: the $287,522,447 interest-only class X3, the $287,522,447 interest-only class X2-B, or the $117,707,447 class D. Fitch did not rate the $287,522,447 class X3 of the Structured Pass-Through Certificates, Series K-048.
The certificates represent the beneficial interests in a pool of 89 commercial mortgages secured by 89 properties. The Freddie Mac Structured Pass-Through Certificates series K-048 (Freddie Mac SPC K-048) represents a pass-through interest in the corresponding class of securities issued by FREMF 2015-K48. Each Freddie Mac SPC K-048 security has the same designation as its underlying FREMF 2015-K48 class. All loans were originated specifically for Freddie Mac by approved Seller Servicers. The certificates follow a sequential-pay structure.
Fitch reviewed a comprehensive sample of the transaction’s collateral, including site inspections on 67.4% of the properties by balance and cash flow analysis of 77% of the pool.
The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.05x, a Fitch stressed loan-to-value (LTV) of 118.3%, and a Fitch debt yield of 7.25%. Fitch’s aggregate net cash flow represents a variance of 7.75% to issuer cash flows.
KEY RATING DRIVERS
Fitch Leverage Exceeds 2015 YTD Averages: The pool’s Fitch DSCR and LTV are 1.05x and 118.3%, respectively. This represents higher leverage than for Fitch-rated, 10-year, K-series Freddie Mac deals in 2015 YTD. The 2015 YTD average DSCR and LTV for Fitch-rated, 10-year, K-series Freddie Mac deals are 1.09x and 115.1%, respectively. In addition, 61.3% of the loans in the pool have a Fitch DSCR lower than 1.0x; the 2015 YTD percentage is 45.2%.
Diverse Pool by Loan Concentration: The top 10 loans make up 32.1% of the pool, which is slightly lower than the 2015 YTD average of 35.8% for Fitch-rated, 10-year, K-series Freddie Mac deals. The largest loan in the pool, Casa Del Sol, represents 4.85% of the pool, while the second largest loan, Deerfield Village Apartments, represents 3.7% of the pool.
Manufactured Housing and Healthcare Concentration: Eight loans (7.2%) and five loans (3.9%) are classified as Manufactured Housing and Healthcare, respectively, including two of the top 10 loans in the pool: Hillcrest Village (2.82%) and Kensington Park (2.61%). Manufactured Housing and Healthcare are considered more volatile and/or require more operational experience than traditional multifamily assets. The average 2015 YTD Fitch-rated, 10-year, K-series Freddie Mac property concentrations for Manufactured Housing and Healthcare are 4% and 2%, respectively.
Above-Average Pool Amortization Compared to YTD 2015 Levels: Within the pool, 16 loans representing 13.5% of the pool are full-term interest-only, and 51 loans representing 71.7% of the pool have partial-term interest-only components. Based on the loans’ scheduled maturity balance, the pool is expected to amortize 11% during the life of the transaction. This is a higher level of paydown than recent Fitch-rated, 10-year, K-series Freddie Mac deals, which averaged 9.8% for 2015 YTD. Even though the pool’s paydown is higher than 2015 levels, it is still below the 2014 average of 12.1%.
Low Mortgage Coupons: The pool’s weighted average coupon is 3.86%, well below historical averages and in line with recent 2015 Fitch-rated, 10-year, K-series Freddie Mac deals. Fitch accounted for increased refinance risk in a higher interest rate environment by reviewing an interest rate sensitivity that assumes an interest rate floor of 4.5% for multifamily properties, in conjunction with Fitch’s stressed refinance rates, which were 8.7% on a weighted average basis.
RATING SENSITIVITIES
Fitch performed two model-based break-even analyses to determine the level of cash flow and value deterioration the pool could withstand prior to $1 of loss being experienced by the ‘BBB-sf’ and ‘AAAsf’ rated classes. Fitch found that the FREMF 2015-K48 pool could withstand a 44.7% decline in value (based on appraised values at issuance) and an approximately 18.7% decrease to the most recent actual cash flow prior to experiencing $1 of loss to any ‘AAAsf’ rated class. Additionally, Fitch found that the pool could withstand a 37.4% decline in value and an approximately 7.9% decrease in the most recent actual cash flow prior to experiencing $1 of loss to the ‘BBB-sf’ rated class.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from KPMG LLP. The third-party due diligence information was provided on Form ABS Due Diligence-15E and focused on a comparison and re-computation of certain characteristics with respect to each of the 89 mortgage loans. Fitch considered this information in its analysis and the findings did not have an impact on our analysis. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of the related rating action commentary (RAC).
Additional information is available at www.fitchratings.com.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Analyzing Multiborrower U.S. and Canadian Commercial Mortgage Transactions (pub. 28 May 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865499
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating Criteria for Structured Finance Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864375
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria (pub. 10 Dec 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=812608
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991294
ABS Due Diligence Form 15E 1
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991294
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch Ratings
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