Fitch to Rate FREMF 2016-K55 Multifamily Mtge PT Ctfs & Freddie Mac SPC Series K-055; Presale Issued

NEW YORK--()--Fitch Ratings has issued a presale report on FREMF 2016-K55 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates Series K-055.

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

FREMF 2016-K55 Multifamily Mortgage Pass-Through Certificates

--$130,963,000 class A-1 'AAAsf'; Outlook Stable;

--$906,000,000 class A-2 'AAAsf'; Outlook Stable;

--$1,036,963,000* class X1 'AAAsf'; Outlook Stable;

--$115,218,000 class B 'BBB+sf'; Outlook Stable;

--$32,005,000 class C 'BBB-sf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates Series K-055

--$130,963,000 class A-1 'AAAsf'; Outlook Stable;

--$906,000,000 class A-2 'AAAsf'; Outlook Stable;

--$1,036,963,000* class X1 'AAAsf'; Outlook Stable.

*Notional amount and interest only.

The expected ratings are based on information provided by the issuer as of June 1, 2016. Fitch does not expect to rate the following classes of FREMF 2016-K55: the $243,238,237 interest-only class X3, or the $96,015,237 class D.

Additionally, Fitch does not expect to rate the following class of Freddie Mac Structured Pass-Through Certificates Series K-055: the $243,238,237 interest-only class X3.

The certificates represent the beneficial interests in a pool of 78 commercial mortgages secured by 78 properties. The Freddie Mac Structured Pass-Through Certificates Series K-055 (Freddie Mac SPC K-055) represents a pass-through interest in the corresponding class of securities issued by FREMF 2016-K55. Each Freddie Mac SPC K-055 security has the same designation as its underlying FREMF 2016-K55 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 72.9% of the properties by balance and cash flow analysis of 75.9% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 0.98x, a Fitch stressed loan-to value (LTV) of 118.1%, and a Fitch debt yield of 7.12%. Fitch's aggregate net cash flow represents a variance of 10.74% to issuer cash flows.

KEY RATING DRIVERS

Fitch Leverage Exceeds 2016 YTD and 2015 Averages: The pool's Fitch DSCR and LTV are 0.98x and 118.1%, respectively. This represents higher leverage than the Fitch-rated 2016 YTD and 2015 average DSCR and LTV for 10-year, K-series Freddie Mac deals of 1.04x and 115.5% and 1.08x and 115%, respectively. In addition, 68.1% of the loans in the pool have a Fitch DSCR lower than 1.00x; the average 2016 YTD percentage was 55.9%.

Above-Average Pool Amortizations:

Based on the loans' scheduled maturity balance, the pool is expected to amortize 12% during the life of the transaction. This is above recent amortization levels for Freddie Mac securitizations, which had an average of 10.3% and 10.2% for 2016 YTD and 2015 Fitch rated 10-year, K-series Freddie Mac deals, respectively. Within the pool, one loan representing 0.8% of the pool is full-term interest only, and 51 loans representing 80.1% of the pool have partial-term interest-only components.

Less Diverse Pool Than 2016 YTD and 2015 Freddie Mac Deals: The top 10 loans comprise 37% of the pool, which is higher than the 2016 YTD and 2015 averages of 32.6% 33.2%, respectively for Fitch-rated 10-year, K-series Freddie Mac deals. The largest loan in the pool, Stonebridge Village, represents 6.1% of the pool, while the second largest loan, Excelsior And Grand, represents 5.2% of the pool.

Tenants In Common (TIC) Ownership Structure: Five loans (13.6% of the pool) have a TIC ownership structure. Recent Fitch-rated 10-year, K-Series Freddie Mac transactions have had a TIC ownership structure ranging from 1.7% to 11%.

Low Mortgage Coupons: The pool's weighted average coupon is 4.29%, well below historical averages and slightly above recent 2016 and 2015 Fitch-rated 10-year, K-Series Freddie Mac deals. Fitch accounted for increased refinance risk in a higher interest rate environment by reviewing an interest rate sensitivity that assumes an interest rate floor of 4.5% for multifamily properties, in conjunction with Fitch's stressed refinance rates, which were 9.29% on a weighted average basis.

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 2016-K55 pool could withstand a 44.4% decline in value (based on appraised values at issuance) and an approximately 19.2% decrease to the most recent actual cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class. Additionally, Fitch found that the pool could withstand a 36.5% decline in value and an approximately 7.7% decrease in the most recent actual cash flow prior to experiencing $1 of loss to the 'BBB-sf' rated class.

DUE DILIGENCE USAGE

Fitch was provided with third-party due diligence information from PricewaterhouseCoopers 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 78 mortgage loans. Fitch considered this information in its analysis and the findings did not have an impact on its 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.

FREMF 2016-K55 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-055

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882635

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 Large Loans in U.S. Commercial Mortgage Transactions (pub. 27 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870009

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

FREMF 2016-K55 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-055 -- Appendix

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882755

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005636

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1005636&flm_nm=15e_1005636_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005636

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

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

Contacts

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