Fitch Assigns Final Ratings to FREMF 2016-K57 Multifamily Mtg PT Ctfs & Freddie Mac SPC, Ser K-057

NEW YORK--()--Fitch Ratings has assigned the following ratings and Rating Outlooks to FREMF 2016-K57 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates series K-057:

FREMF 2016-K57 Multifamily Mortgage Pass-Through Certificates

--$119,521,000 class A-1 'AAAsf'; Outlook Stable;

--$865,000,000 class A-2 'AAAsf'; Outlook Stable;

--$55,956,000 class A-M 'A+sf'; Outlook Stable;

--$984,521,000* class X1 'AAAsf'; Outlook Stable;

--$55,956,000* class XAM 'A+sf'; Outlook Stable;

--$984,521,000* class X2-A 'AAAsf'; Outlook Stable;

--$48,394,000 class B 'BBB+sf'; Outlook Stable;

--$30,246,000 class C 'BBB-sf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates, Series K-057

--$119,521,000 class A-1 'AAAsf'; Outlook Stable;

--$865,000,000 class A-2 'AAAsf'; Outlook Stable;

--$55,956,000 class A-M 'A+sf'; Outlook Stable;

--$984,521,000* class X1 'AAAsf'; Outlook Stable;

--$55,956,000* class XAM 'A+sf'; Outlook Stable.

*Notional amount and interest only.

Fitch did not rate the following classes of FREMF 2016-K57: $169,380,042 interest-only class X3, $225,336,042 interest-only class X2-B, or $90,740,042 class D.

Additionally, Fitch did not rate the following class of Freddie Mac Structured Pass-Through Certificates, Series K-057: $169,380,042 interest-only class X3.

The certificates represent the beneficial interests in a pool of 72 commercial mortgages secured by 72 properties. The Freddie Mac Structured Pass-Through Certificates series K-057 (Freddie Mac SPC K-057) represents a pass-through interest in the corresponding class of securities issued by FREMF 2016-K57. Each Freddie Mac SPC K-057 security has the same designation as its underlying FREMF 2016-K57 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 62.1% of the properties by balance and cash flow analysis of 77.8% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.05x, a Fitch stressed loan-to value (LTV) of 116.1%, and a Fitch debt yield of 7.35%. Fitch's aggregate net cash flow represents a variance of 9.10% to issuer cash flows.

KEY RATING DRIVERS

Higher Leverage Consistent with Recent Transactions: The pool's Fitch DSCR and LTV are 1.05x and 116.1%, respectively. These levels represent slightly lower leverage than the Fitch-rated 2016 YTD DSCR and LTV for 10-year, K-series Freddie Mac deals of 1.02x and 116.4%, respectively, but higher leverage than the respective 2015 averages of 1.08x and 115%. In addition, 58.8% of the loans in the pool have a Fitch DSCR lower than 1.00x; the average 2016 YTD percentage is 59.2%.

Limited Amortization: The pool is scheduled to amortize 9.4% of the initial pool balance prior to maturity, below the Fitch-rated Freddie Mac 10-year 2016 YTD and 2015 averages of 10.8% and 10.2%, respectively. Fifteen loans (21.7%) are full-term interest-only, and 48 loans (71.2%) are partial interest-only. The remaining loans (7.2%) are amortizing balloon loans with a term of 10 years.

More Concentrated than Other Recent Freddie Mac Transactions: The top 10 loans comprise 42.2% of the pool, which is higher than the Fitch-rated, Freddie Mac, 10-year 2016 YTD and 2015 averages of 33.8% and 33.2%, respectively. The largest loan in the pool, Chelsea Ridge Apartments, represents 7.7% of the pool, while the second largest loan, Sterling Pointe, represents 6.5% of the pool.

Low Mortgage Coupons: The pool's weighted average coupon is 4.15%, well below historical averages and slightly less than the 2016 YTD, Fitch-rated, 10-year, K-series Freddie Mac average of 4.22%. 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 8.57% 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-K57 pool could withstand a 46.4% decline in value (based on appraised values at issuance) and an approximately 22.0% 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 39.1% decline in value and an approximately 11.4% decrease in the most recent actual cash flow prior to experiencing $1 of loss to the 'BBB-sf' rated class.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Fitch was provided with third-party due diligence information from Deloitte & Touche 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 72 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.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006

Criteria for Analyzing Multiborrower U.S. and Canadian Commercial Mortgage Transactions (pub. 01 Jul 2016)
https://www.fitchratings.com/site/re/882237

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
https://www.fitchratings.com/site/re/882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130

Rating Criteria for Structured Finance Servicers (pub. 01 Jul 2016)
https://www.fitchratings.com/site/re/884140

Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)
https://www.fitchratings.com/site/re/735382

U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
https://www.fitchratings.com/site/re/873395

Related Research

FREMF 2016-K57 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-057 -- Appendix
https://www.fitchratings.com/site/re/887526

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1012368

ABS Due Diligence Form 15E 1
https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1012368&flm_nm=15e_1012368_1.pdf

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1012368

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

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Contacts

Fitch Ratings
Primary Analyst:
Robert Ritter, +1-212-908-0328
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Alphonse Briand, +1-212-908-0810
Analyst
or
Committee Chairperson:
Eric Rothfeld, +1-212-908-0761
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Robert Ritter, +1-212-908-0328
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Alphonse Briand, +1-212-908-0810
Analyst
or
Committee Chairperson:
Eric Rothfeld, +1-212-908-0761
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com