Fitch to Rate FREMF 2014-K717 Multifamily Mtge P-T Ctfs & Freddie Mac SPC, Ser K-717; Presale Issued

NEW YORK--()--Fitch Ratings has issued a presale report on FREMF 2014-K717 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-717.

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

FREMF 2014-K717 Multifamily Mortgage Pass-Through Certificates

--$87,283,000 class A-1 'AAAsf'; Outlook Stable;

--$1,142,200,000 class A-2 'AAAsf'; Outlook Stable;

--$1,229,483,000* class X1 'AAAsf'; Outlook Stable;

--$1,229,483,000* class X2-A 'AAAsf'; Outlook Stable;

--$99,688,000 class B 'A-sf'; Outlook Stable.

--$36,922,000 class C 'BBBsf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates, Series K-717

--$87,283,000 class A-1 'AAAsf'; Outlook Stable;

--$1,142,200,000 class A-2 'AAAsf'; Outlook Stable;

--$1,229,483,000* class X1 'AAAsf'; Outlook Stable;

*Notional amount and interest only.

The expected ratings are based on information provided by the issuer as of Nov. 12, 2014. Fitch does not expect to rate the following classes of FREMF 2014-K717: the $247,374,608 interest-only class X3, the $247,374,608 interest only class X2-B, or the $110,764,608 class D. Fitch does not expect to rate the $247,374,608 class X3 of the Structured Pass-Through Certificates, Series K-717.

The certificates represent the beneficial interests in a pool of 75 commercial mortgages secured by 75 properties. The Freddie Mac Structured Pass-Through Certificates, Series K-717 (Freddie Mac SPC K-717) represents a pass-through interest in the corresponding class of securities issued by FREMF 2014-K717. Each Freddie Mac SPC K-717 security has the same designation as its underlying FREMF 2014-K717 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 66.1% of the properties by balance and cash flow analysis of 69.4% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.08x, a Fitch stressed loan-to value (LTV) of 115.9%, and a Fitch debt yield of 7.2%. Fitch's aggregate net cash flow represents a variance of 7.4% to issuer cash flows.

KEY RATING DRIVERS

Fitch Leverage: The Fitch stressed LTV ratio is 115.9% and is slightly above the average of the five most recent, seven year, K-series Freddie Mac deals rated by Fitch, which averaged 115.2%. The Fitch stressed DSCR, at 1.08x, is just above the average of 1.07x for the comparative sample.

Collateral Quality: Fitch performed property inspections on assets representing 66.1% of the transaction balance. Eleven properties, 25.4% of the pool balance, received property quality grade of 'B+' or better. Eighteen properties, representing 33.4% of the transaction pool balance, received property quality scores of 'B', three assets (6.7%) received a property quality score of 'B-', one asset (1.9%) a quality score of 'C+', and two assets (1.4%) a quality score of 'C'. In addition, six loans (11.4%) are collateralized by newly constructed properties built between 2013 and 2014.

Pool Concentration: The largest loan comprises 5.9% of the pool while the top 10 loans constitute 34.3% of the pool. All of the loans are structured with seven year terms, scheduled to mature between February 2012 and November 2021.

Partial Interest and Interest Only: Twenty loans representing 33.7% of the pool are full-term interest only, and 40 loans representing 49.4% of the pool have partial-term interest-only components. Based on the loans' scheduled maturity balance, the pool is expected to amortize 6.6% during the term.

Property-Type Concentration: Of the pool, 100% is backed by multifamily properties. Two loans (1.1%) are classified as student housing and four loans (2.7%) are classified as assisted/independent living facilities.

Strong Origination Practices: All loans were originated by various sellers/originators according to Freddie Mac K Deal Program guidelines and adhere to the originator best practices identified by Fitch. Freddie Mac multifamily loans had an average delinquency rate of 0.04% as of August 2014 compared with 5.32% 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.

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 'BBBsf' and 'AAAsf' rated classes. Fitch found that the FREMF 2014-K717 pool could withstand a 36.3% decline in value (based on appraised values at issuance) and an approximately 7.6% decrease to the most recent actual cash flow prior to experiencing $1 of loss to the 'BBBsf' rated class. Additionally, Fitch found that the pool could withstand a 42.7% decline in value and an approximately 16.8% 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 Wells Fargo bank, National Association, rated 'CSS2-', 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;

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

--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and ReREMIC Criteria', December 2013;

--'Global Structured Finance Rating Criteria', August 2014.

Applicable Criteria and Related Research: FREMF 2014-K717 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-717 (US CMBS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=814588

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Global Structured Finance Rating Criteria

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

Rating Criteria for U.S. Commercial Mortgage Servicers

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735382

Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=926095

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Contacts

Fitch Ratings
Primary Analyst:
Benson Thomas, +1-212-908-0645
Director
Fitch Ratings, Inc.
33 White Hall St.
New York, NY 10004
or
Secondary Analyst:
Alphonse Briande, +1-212-908-0810
Analyst
or
Committee Chairperson:
Eric Rothfeld, +1-212-908-0517
Managing Director
or
Sandro Scenga, +1-212-908-0278
Media Relations, New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Benson Thomas, +1-212-908-0645
Director
Fitch Ratings, Inc.
33 White Hall St.
New York, NY 10004
or
Secondary Analyst:
Alphonse Briande, +1-212-908-0810
Analyst
or
Committee Chairperson:
Eric Rothfeld, +1-212-908-0517
Managing Director
or
Sandro Scenga, +1-212-908-0278
Media Relations, New York
sandro.scenga@fitchratings.com