Fitch to Rate 2014-K39 Multifamily Mtge PT Ctfs & Freddie Mac SPC, Series K-039; Presale Issued

CHICAGO--()--Fitch Ratings has issued a presale report on FREMF 2014-K39 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-039.

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

FREMF 2014-K39 Multifamily Mortgage Pass-Through Certificates

--$156,270,000 class A-1 'AAAsf'; Outlook Stable;

--$977,510,000 class A-2 'AAAsf'; Outlook Stable;

--$1,133,780,000* class X1 'AAAsf'; Outlook Stable;

--$1,133,780,000* class X2-A 'AAAsf'; Outlook Stable;

--$63,172,000 class B 'Asf'; Outlook Stable.

--$33,249,000 class C 'BBB+sf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates, Series K-039

--$156,270,000 class A-1 'AAAsf'; Outlook Stable;

--$977,510,000 class A-2 'AAAsf'; Outlook Stable;

--$1,133,780,000* class X1 'AAAsf'; Outlook Stable;

*Notional amount and interest only.

The expected ratings are based on information provided by the issuer as of September 1, 2014. Fitch does not expect to rate the following classes of FREMF 2014-K39: the $196,167,775 interest-only class X3, the $196,167,775 interest only class X2-B, or the $99,746,775 class D. Fitch does not expect to rate the $196,167,775 class X3 of the Structured Pass-Through Certificates, Series K-039.

The certificates represent the beneficial interests in a pool of 105 commercial mortgages secured by 107 properties. The Freddie Mac Structured Pass-Through Certificates, Series K-039 (Freddie Mac SPC K-039) represents a pass-through interest in the corresponding class of securities issued by FREMF 2014-K39. Each Freddie Mac SPC K-039 security has the same designation as its underlying FREMF 2014-K39 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 63.7% of the properties by balance and cash flow analysis of 73.8% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.13x, a Fitch stressed loan-to value (LTV) of 104.6%, and a Fitch debt yield of 8.31%. Fitch's aggregate net cash flow represents a variance of 7.0% to issuer cash flows.

KEY RATING DRIVERS

Low Fitch Leverage: This transaction has slightly lower leverage than other recent Fitch-rated, fixed-rate, 10-year Freddie Mac deals. The Fitch stressed LTV ratio is 104.6%, and is below the average of 2013 Fitch-rated, 10-year, K-Series Freddie Mac deals, which averaged 112.8%. The Fitch stressed DSCR, at 1.13x, is slightly above the average of 1.12x for the 2013 Fitch-rated, 10-year, K-series Freddie Mac deals.

Partial Interest and Interest Only Loans: Twenty-two loans representing 20.1% of the pool are full-term interest only, and 34 loans representing 39.0% of the pool have partial-term interest-only components. Based on the loans' scheduled maturity balance, the pool is expected to amortize 12.79% during the term.

Credit Opinion Loan: The third largest loan in the pool (2.6%) has a Fitch credit opinion of 'AAAsf' on a stand-alone basis. The loan is secured by 250 Mercer Street, a 256-unit high rise co-op complex located in the Greenwich Village section of Manhattan within the New York MSA.

Loan Concentration: The top 10 loans constitute 31.8% of the pool, which is slightly lower than that of recent Freddie Mac transactions. The top loan in the pool, The Bays Apartment Homes, constitutes 9.5% of the pool. The second largest loan is 3.1% of the pool.

Property-Type Concentration: Of the pool, 100% is backed by multifamily properties. Three loans (5.6%) are classified as student housing and one loan (2.1%) is classified as independent living.

Strong Origination Practices: All loans were originated specifically for Freddie Mac by approved Seller Servicers and adhere to the originator best practices identified by Fitch. Freddie Mac multifamily loans had an average delinquency rate of 0.02% as of June 2014 compared with 5.65% on Fitch-rated CMBS multifamily loans as of the same period. Based on these program attributes, Fitch applies a programmatic credit to Freddie Mac transactions.

Asset Volatility: Three loans in the top 10 have asset volatility scores of 4 due to their locations in historically volatile regions as determined by Fitch. Overall, 13 loans in the pool have volatility scores of 4, representing 14.05% of the pool balance.

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 2014-K39 pool could withstand a 46.6% decline in value (based on appraised values at issuance) and an approximately 20.3% decrease to the most recent actual cash flow prior to experiencing $1 of loss to the 'BBB+sf' rated class. Additionally, Fitch found that the pool could withstand a 48.1% decline in value and an approximately 22.6% decrease in the most recent actual cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report.

The Master Servicer is Keybank National Association, rated 'CMS1' by Fitch. The Special Servicer is Berkeley Point Capital LLC rated 'CSS3+', by Fitch.

The presale report is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions' (June 2014);

--'Criteria', for Analyzing Large Loans in U.S. Commercial Mortgage Transactions' (September 2013);

--'U.S. Commercial Mortgage Servicer Rating Criteria'(February 2014);

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and ReREMIC Criteria' (Dec. 18, 2012);

--'Global Structured Finance Rating Criteria' (Aug. 4, 2014).

Applicable Criteria and Related Research: FREMF 2014-K39 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-039 (US CMBS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=767328

Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748778

U.S. Commercial Mortgage Servicer Rating Criteria -- Effective Feb. 18, 2011 to Feb. 14, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=584005

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria -- Effective Dec. 18, 2012 to Dec. 11, 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696969

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=754389

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718468

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=863134

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Contacts

Fitch Ratings
Primary Analyst
Clement Okeke
Analyst
+1-312-606-2323
Fitch Ratings, Inc.
70 W. Madison Street
Chicago IL, 60602
or
Secondary Analyst
Donald MacMaster
Analyst
+1-212-908-0379
or
Committee Chairperson
Eric Rothfeld
Managing Director
+1-212-908-0517
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Clement Okeke
Analyst
+1-312-606-2323
Fitch Ratings, Inc.
70 W. Madison Street
Chicago IL, 60602
or
Secondary Analyst
Donald MacMaster
Analyst
+1-212-908-0379
or
Committee Chairperson
Eric Rothfeld
Managing Director
+1-212-908-0517
or
Media Relations
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com