CHICAGO--(BUSINESS WIRE)--Fitch Ratings has issued a presale report on Real Estate Asset Liquidity Trust's (REAL-T) commercial mortgage pass-through certificates series 2016-1.
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$196,710,000 class A-1 'AAAsf'; Outlook Stable;
--$150,114,000 class A-2 'AAAsf'; Outlook Stable;
--$9,022,000 class B 'AAsf'; Outlook Stable;
--$12,028,000 class C 'Asf'; Outlook Stable;
--$11,026,000 class D 'BBBsf'; Outlook Stable;
--$5,513,000 class E 'BBB-sf'; Outlook Stable;
--$4,511,000 class F 'BBsf'; Outlook Stable;
--$4,010,000 class G 'Bsf'; Outlook Stable.
All currencies are in Canadian dollars (CAD).
Fitch does not expect to rate the $400,953,248 (notional balance) interest-only class X or the non-offered $8,019,248 class H certificates.
The certificates represent the beneficial ownership in the trust, primary assets of which are 55 loans secured by 91 commercial properties located in Canada having an aggregate principal balance of approximately $401 million as of the cutoff date. The loans were originated or acquired by Royal Bank of Canada.
Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 76.5% of the properties, by balance, cash flow analysis on 100%, and asset summary reviews on 100% of the pool.
The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.12x, a Fitch stressed loan-to-value (LTV) of 110%, and a Fitch debt yield of 8.43%. Fitch's aggregate net cash flow represents a variance of 4.29% to issuer cash flows.
KEY RATING DRIVERS
High Fitch Leverage: The transaction has higher leverage than other recent Fitch-rated Canadian multiborrower deals. The pool's Fitch DSCR of 1.12x is below both the 2015 and 2014 averages of 1.18x and 1.13x, respectively. The pool's Fitch LTV of 110% is above both the 2015 average of 102.6% and the 2014 average of 104.8%.
Significant Amortization: The pool's weighted average remaining amortization term is 27.0 years, which represents faster amortization than U.S. conduit loans. There are no partial or full interest-only loans. The pool's maturity balance represents a paydown of 23.3% of the closing balance, which represents less paydown than the 2015 Canadian average of 28.8% but significantly more paydown than the 2015 U.S. multiborrower average of 11.7%.
Canadian Loan Attributes and Historical Performance: The ratings reflect strong historical Canadian commercial real estate loan performance, including a low delinquency rate and low historical losses of less than 0.1%, as well as positive loan attributes, such as short amortization schedules, recourse to the borrower and additional guarantors. For more information on prior Canadian CMBS securitizations, see Fitch's 'Canadian CMBS Default and Loss Study,' (October 2013) at www.fitchratings.com.
Loans with Recourse: Of the pool, 82.3% of the loans feature full or partial recourse to the borrowers and/or sponsors, which is above the 63% from the recent IMSCI 2015-6 transaction and in line with the 82.6% from the REAL-T 2015-1 transaction. In Fitch's analysis, the probability of default is reduced for loans with recourse.
RATING SENSITIVITIES
For this transaction, Fitch's net cash flow (NCF) was 17.9% below the most recent year's net operating income (NOI; for properties for which a full-year NOI was provided, excluding properties that were stabilizing during this period). The following rating sensitivities describe how the ratings would react to further NCF declines below Fitch's NCF. The implied rating sensitivities are only indicative of some of the potential outcomes and do not consider other risk factors to which the transaction is exposed. Stressing additional risk factors may result in different outcomes. Furthermore, the implied ratings, after the further NCF stresses are applied, are more akin to what the ratings would be at deal issuance had those further stressed NCFs been in place at that time.
Fitch evaluated the sensitivity of the ratings assigned to REAL-T 2016-1 certificates and found that the transaction displays average sensitivity to further declines in NCF. In a scenario in which NCF declined a further 20% from Fitch's NCF, a downgrade of the senior 'AAAsf' certificates to 'Asf' could result. In a more severe scenario, in which NCF declined a further 30% from Fitch's NCF, a downgrade of the senior 'AAAsf' certificates to 'BBBsf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities on page 11.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Deloitte 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 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.
REAL-T 2016-1
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881031
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Criteria for Analyzing Multiborrower U.S. and Canadian Commercial Mortgage Transactions (pub. 03 Mar 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878298
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating Criteria for Structured Finance Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864375
Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735382
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873395
Related Research
REAL-T 2016-1 Commercial Mortgage Pass-Through Certificates Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881163
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003746
ABS Due Diligence Form 15E 1
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003746
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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