Fitch to Rate FREMF 2014-K41 and Freddie Mac SPC, Series K-041; Issues Presale

NEW YORK--()--Link to Fitch Ratings' Report: FREMF 2014-K41 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-041 (US CMBS)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=822108

Fitch Ratings expects to assign the following ratings and Rating Outlooks to FREMF 2014-K41 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-041:

FREMF 2014-K41 Multifamily Mortgage Pass-Through Certificates

-- $176,219,000 class A-1 'AAAsf'; Outlook Stable;

-- $962,428,000 class A-2 'AAAsf'; Outlook Stable;

-- $1,138,647,000* class X1 'AAAsf'; Outlook Stable;

-- $1,138,647,000* class X2-A 'AAAsf'; Outlook Stable;

-- $103,514,000 class B 'BBB+sf'; Outlook Stable.

-- $34,504,000 class C 'BBB-sf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates, Series K-041

-- $176,219,000 class A-1 'AAAsf'; Outlook Stable;

-- $962,428,000 class A-2 'AAAsf'; Outlook Stable;

-- $1,138,647,000* class X1 'AAAsf'; Outlook Stable;

*Notional amount and interest only.

The expected ratings are based on information provided by the issuer as of November 21, 2014. Fitch does not expect to rate the following classes of FREMF 2014-K41: the $241,532,184 interest-only class X3, the $241,532,184 interest only class X2-B, or the $103,514,184 class D. Fitch does not expect to rate the $241,532,184 class X3 of the Structured Pass-Through Certificates, Series K-041.

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-041 (Freddie Mac SPC K-041) represents a pass-through interest in the corresponding class of securities issued by FREMF 2014-K41. Each Freddie Mac SPC K-041 security has the same designation as its underlying FREMF 2014-K41 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 65% of the properties by balance and cash flow analysis of 74.4% 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 114.7%, and a Fitch debt yield of 7.9%. Fitch's aggregate net cash flow represents a variance of 8.1% to issuer cash flows.

KEY RATING DRIVERS

Fitch Leverage and DSCR Relative to Recent Fixed-Rate Freddie Mac Deals: The Fitch stressed LTV ratio is 114.7%, and is slightly above the average of 2013 Fitch-rated, 10-year, K-Series Freddie Mac deals, which averaged 111%. The Fitch stressed DSCR, at 1.11x, is slightly below the average of 1.12x for the 2013 Fitch-rated, 10-year, K-series Freddie Mac deals.

Loan Concentration: The top 10 loans constitute 30.4% of the pool. This is lower than that of recent Freddie Mac transactions and of the averages of the 2012 (35.9%) and 2013 Fitch-rated (35.4%), 10-year, K-Series Freddie Mac deals. However it has a higher concentration versus FREMF 2014-K40 (26.0%), the most recent Fitch-rated, 10-year, K-series Freddie Mac deal. The top loan in the pool, The Residences at Stevens Pond, constitutes 5.48% of the pool. The second largest loan, Waterfield Court, is 3.36% of the pool.

Property-Type Concentration: Of the pool, 100% is backed by multifamily properties. One loan (0.77%) is classified as a manufactured housing community and one loan (0.67%) is classified as age-restricted independent living facility.

Partial Interest and Interest Only Loans: Eleven loans representing 12.44% of the pool are full-term interest only, and 54 loans representing 69.40% of the pool have partial-term interest-only components. Based on the loans' scheduled maturity balance, the pool is expected to amortize 12.3% during the term.

Strong Origination Practices: All loans were originated by various sellers/originators according to Freddie Mac K-Series product 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 'BBB-sf' and 'AAAsf' rated classes. Fitch found that the FREMF 2014-K41 pool could withstand a 39.36% decline in value (based on appraised values at issuance) and an approximately 10.25% 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 45.91% decline in value and an approximately 19.95% 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 detailed in the accompanying presale report, available at 'www.fitchratings.com' or by clicking on the above link.

The Master Servicer is KeyBank National Association (rated 'CMS1' by Fitch). The Special Servicer is Wells Fargo Bank, National Association (rated 'CSS2-').

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

Applicable Criteria and Related Research:

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

-- 'Rating Criteria for U.S. Commercial Mortgage Servicers' (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:

Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748778

Rating Criteria for U.S. Commercial Mortgage Servicers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735382

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

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=939815

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.

Contacts

Fitch Ratings, Inc.
Primary Analyst
Leo Marcus, +1-212-612-7845
Associate Director
33 Whitehall Street, New York NY, 10004
or
Secondary Analyst
Isaac Wood, +1-212-612-7853
Analyst
or
Committee Chairperson
Eric Rothfeld, +1-212-908-0761
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Leo Marcus, +1-212-612-7845
Associate Director
33 Whitehall Street, New York NY, 10004
or
Secondary Analyst
Isaac Wood, +1-212-612-7853
Analyst
or
Committee Chairperson
Eric Rothfeld, +1-212-908-0761
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com