MRO Magazine

Fitch to Rate FREMF 2015-K49 Multifamily Mtge PT Ctfs & Freddie Mac SPC Series K-049; Presale Issued


October 13, 2015
By Business Wire News

CHICAGO

Fitch Ratings has issued a presale report on FREMF 2015-K49 Multifamily Mortgage Pass-Through Certificates and Freddie Mac structured pass-through certificates series K-049.

Fitch expects to rate the transaction and assign Rating Outlooks as follows:

FREMF 2015-K49 Multifamily Mortgage Pass-Through Certificates

–$180,400,000 class A-1 ‘AAAsf’; Outlook Stable;

–$1,109,093,000 class A-2 ‘AAAsf’; Outlook Stable;

–$1,289,493,000* class X1 ‘AAAsf’; Outlook Stable;

–$1,289,493,000* class X2-A ‘AAAsf’; Outlook Stable;

–$125,804,000 class B ‘BBB+sf’; Outlook Stable;

–$39,314,000 class C ‘BBB-sf’; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates series K-049

–$180,400,000 class A-1 ‘AAAsf’; Outlook Stable;

–$1,109,093,000 class A-2 ‘AAAsf’; Outlook Stable;

–$1,289,493,000* class X1 ‘AAAsf’; Outlook Stable.

*Notional amount and interest only.

The expected ratings are based on information provided by the issuer as of Oct. 6, 2015. Fitch does not expect to rate the following classes of FREMF 2015-K49: the $283,059,795 interest-only class X3, the $283,059,795 interest only class X2-B, or the $117,941,795 class D. Fitch does not expect to rate the $283,059,795 class X3 of the structured pass-through certificates, series K-049.

The certificates represent the beneficial interests in a pool of 96 commercial mortgages secured by 96 properties. The Freddie Mac structured pass-through certificates series K-049 (Freddie Mac SPC K-049) represents a pass-through interest in the corresponding class of securities issued by FREMF 2015-K49. Each Freddie Mac SPC K-049 security has the same designation as its underlying FREMF 2015-K49 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 62.7% of the properties by balance and cash flow analysis of 69.5% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.11x, a Fitch stressed loan-to value (LTV) of 112.2%, and a Fitch debt yield of 7.61%. Fitch’s aggregate net cash flow represents a variance of 5.8% to issuer cash flows.

KEY RATING DRIVERS

Fitch Leverage below 2015 YTD Averages: The pool’s Fitch DSCR and LTV are 1.11x and 112.2%, respectively. This represents lower 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 is 1.09x and 115.6%, respectively. In addition, 48.3% of the loans in the pool have a Fitch DSCR lower than 1.0x; the 2015 YTD percentage is 47.9%.

Diverse Pool by Loan Concentration: The top 10 loans comprise 28.9% of the pool, which is lower than the 2015 YTD average of 35.2% for Fitch-rated, 10-year, K-series Freddie Mac deals. The largest loan in the pool, Oasis Townhomes, represents 3.31% of the pool, while the second largest loan, Excelsior II Apartments, represents 3.29% of the pool.

Manufactured Housing and Healthcare Concentration: Thirteen loans (7.1%) and three loans (1.5%) are classified as Manufactured Housing and Healthcare, respectively. 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 4.6% and 2.3%, respectively.

Above-Average Pool Amortization Compared to YTD 2015 Levels: Within the pool, 18 loans representing 19.3% of the pool are full-term interest only, and 45 loans representing 56.6% of the pool have partial-term interest-only components. Based on the loans’ scheduled maturity balance, the pool is expected to amortize 11.4% 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 10.07% for 2015 YTD. Even though the pool’s paydown is higher than 2015 levels, it is still below the 2014 average of 13.2%.

Low Mortgage Coupons: The pool’s weighted average coupon is 3.94%, 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 8.6% 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-K49 pool could withstand a 44.9% decline in value (based on appraised values at issuance) and an approximately 21.0% 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 37.8% decline in value and an approximately 10.8% 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 96 mortgage loans. Fitch considered this information in its analysis, and the findings did not have an impact on the 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.

Additional information is available at www.fitchratings.com.

FREMF 2015-K49 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-049

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872329

Applicable Criteria

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Related Research

FREMF 2015-K49 Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=872470

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=992214

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=992214&flm_nm=15e_992214_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992214

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM‘. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch Ratings
Primary Analyst
Clement Okeke
Associate Director
+1-312-606-2323
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Robert Vrchota
Managing Director
+1-312-368-3336
or
Media Relations:
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com