Kroll Bond Rating Agency Assigns Final Ratings to FREMF2012-K711 and Freddie Mac structured pass-through certificates

NEW YORK--()--Kroll Bond Rating Agency (KBRA) assigned its final ratings to seven classes of FREMF 2012-K711 mortgage pass-through certificates and three classes of Freddie Mac structured pass-through certificates (SPCs), Series K711, a $1.38 billion CMBS multi-borrower transaction. Concurrently, we have withdrawn our preliminary ratings on the transaction, which we assigned on November 5, 2012 (see list below).

The transaction is collateralized by 76 multifamily commercial mortgage loans. The loans have principal balances that range from $1.7million to $68.8million for the largest loan, which is secured by the fee simple interest in Canyon Creek Apartments (5.0%), a 558-unit garden-style apartment building located in Bothell, Washington. The top five loans represent 20.2% of the pool cut-off balance and the top ten exposures represent 33.6%. The properties range in size from 21 to 576 units and the majority of the assets are garden-style apartment projects (60 properties, 80.6%). The underlying collateral properties are geographically dispersed throughout 22 states. The three largest state exposures are Florida (21.5%, 15 properties), California (12.5%, 13 properties) and Washington (10.2%, five properties). No other state individually represents more than 8.0% of the total pool balance.

KBRA’s analysis of the transaction incorporated our U.S. CMBS multi-borrower rating process that begins with our analysts' evaluation of the underlying collateral properties' financial and operating performance, which are used to determine KBRA’s estimate of sustainable net cash flow (KNCF) and KBRA value. The analysis incorporates a detailed evaluation of the underlying collateral properties’ financial and operating performance using our CMBS Property Evaluation Guidelines to determine Kroll Net Cash Flow (KNCF), which is a key input used in our credit modeling process. KBRA’s weighted average KNCF for the portfolio is 2.6% less than the issuer’s NCF on a weighted average basis. KBRA capitalization rates were applied to each asset’s KNCF to derive individual property values that, on an aggregate basis, were 35.0% less than third party appraisal values. The weighted average KBRA capitalization rate for the transaction is 8.5%.The KBRA credit model deploys rent and occupancy stresses, probability of default regressions, and loss-given default calculations to determine losses for each collateral loan, which are then used to assign our credit ratings.

For complete details on the analysis, please see our Presale Report, FREMF 2012-K711, published on November 5, 2012 at www.krollbondratings.com.

Final Ratings Assigned: FREMF 2012-K711

Class   Rating   Balance (USD)   Rating Action
A-1   AAA (sf)   $110,000,000   Assigned
A-2   AAA (sf)   $1,042,049,000   Assigned
X1*   AAA (sf)   $1,152,049,000   Assigned
X2-A*   AAA (sf)   $1,152,049,000   Assigned
X2-B*   AAA (sf)   $227,650,919   Assigned
B   A- (sf)   $89,680,000   Assigned
C   BBB+(sf)   $34,493,000   Assigned
* Notional Amount      

Final Ratings Assigned: Freddie Mac Structured Pass-Through Certificates, Series K711

Class Rating Balance (USD) Rating Action
A-1 AAA (sf) $110,000,000 Assigned
A-2 AAA (sf) $1,042,049,000 Assigned
X1* AAA (sf) $1,152,049,000 Assigned
* Notional Amount

Related publications (available at www.krollbondratings.com):
CMBS Presale Report: FREMF 2012 – K711, published November 5, 2012
CMBS: FREMF 2012-K711, Disclosure Report, published November 5, 2012 FREMF 2012-K711 17g-7 Disclosure Report
CMBS: U.S. CMBS Multi-Borrower Rating Methodology, published February 23, 2012
CMBS Property Evaluation Guidelines, published June 10, 2011

About Kroll Bond Rating Agency

Kroll Bond Rating Agency, Inc. (www.krollbondratings.com) is registered with the SEC as a nationally recognized statistical rating organization (NRSRO). Kroll Bond Rating Agency was established in 2010 to restore trust in credit ratings by establishing new standards for assessing risk and by offering accurate, clear, and transparent ratings.

Contacts

Analytic Contacts:
Monika Joshi, 646-731-2360
mjoshi@krollbondratings.com
or
Troy Doll, 646-731-2336
tdoll@krollbondratings.com

Sharing

Contacts

Analytic Contacts:
Monika Joshi, 646-731-2360
mjoshi@krollbondratings.com
or
Troy Doll, 646-731-2336
tdoll@krollbondratings.com