Fitch to Rate Morgan Stanley Bank of America Merrill Lynch Trust 2016-C31; Presale Issued

NEW YORK--()--Link to Fitch Ratings' Report: Morgan Stanley Bank of America Merrill Lynch Trust 2016-C31
https://www.fitchratings.com/site/re/889133

Fitch Ratings has issued a presale report on the Morgan Stanley Bank of America Merrill Lynch Trust 2016-C31.

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

--$50,100,000 class A-1 'AAAsf'; Outlook Stable;

--$27,600,000 class A-2 'AAAsf'; Outlook Stable;

--$69,700,000 class A-SB 'AAAsf'; Outlook Stable;

--$17,811,000 class A-3 'AAAsf'; Outlook Stable;

--$210,000,000 class A-4 'AAAsf'; Outlook Stable;

--$292,019,000 class A-5 'AAAsf'; Outlook Stable;

--$667,230,000b class X-A 'AAAsf'; Outlook Stable;

--$110,808,000b class X-B 'AA-sf'; Outlook Stable;

--$65,531,000 class A-S 'AAAsf'; Outlook Stable;

--$45,277,000 class B 'AA-sf'; Outlook Stable;

--$44,085,000 class C 'A-sf'; Outlook Stable;

--$52,425,000ab class X-D 'BBB-sf'; Outlook Stable;

--$25,021,000ab class X-E 'BB-sf'; Outlook Stable;

--$10,723,000ab class X-F 'B-sf'; Outlook Stable;

--$52,425,000a class D 'BBB-sf'; Outlook Stable;

--$25,021,000a class E 'BB-sf'; Outlook Stable;

--$10,723,000a class F 'B-sf'; Outlook Stable.

The following classes are not expected to be rated:

--$42,894,169ab class X-G 'NR';

--$42,894,169ab class G 'NR'.

a - Privately placed pursuant to Rule 144A.

b - Notional amount and interest only.

KEY RATING DRIVERS

Fitch Leverage: The transaction has slightly higher leverage than other recent Fitch-rated transactions. The Fitch debt service coverage ratio (DSCR) for the trust of 1.19x is similar to the year to date (YTD) 2016 average of 1.19x; however, the Fitch loan to value (LTV) for the trust of 107.5% is slightly higher than the YTD 2016 average of 105.8%. Excluding credit-opinion loans, the pool's Fitch DSCR and LTV are 1.17x and 110.1%, respectively. Comparatively, the YTD 2016 average Fitch DSCR and LTV for Fitch-rated deals, excluding credit-opinion and co-op loans, are 1.15x and 109.9%.

Investment-Grade Credit-Opinion Loans: Two loans in the pool, International Square (3.2% of pool) and The Shops at Crystals (1.6% of pool), have investment-grade credit opinions. International Square has an investment-grade credit opinion of 'AA-sf*' on a stand-alone basis. The Shops at Crystals has an investment-grade credit opinion of 'BBB+sf*' on a stand-alone basis. The two loans have a weighted average Fitch DSCR and LTV of 1.64x and 54.5%, respectively. The proportion of credit-opinion loans in this pool is below the YTD 2016 average of 7.4%.

Above-Average Amortization: Based on the scheduled balance at maturity, the pool will pay down 13.9%, which is above the YTD 2016 average of 10.3%. Five loans, representing 10.8% of the pool, are full-term interest only, and 21 loans, representing 46.9% of the pool, are partial interest only. The remainder of the pool is made up of 34 balloon loans, representing 42.2% of the pool, with loan terms of five to 10 years.

RATING SENSITIVITIES

For this transaction, Fitch's net cash flow (NCF) was 12.0% 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). Unanticipated further declines in property-level NCF could result in higher defaults and loss severities on defaulted loans and in potential rating actions on the certificates.

Fitch evaluated the sensitivity of the ratings assigned to MSBAM 2016-C31 certificates and found that the transaction displays average sensitivities to further declines in NCF. In a scenario in which NCF declined a further 20% from Fitch's NCF, a downgrade of the junior 'AAAsf' certificates to 'A-sf' could result. In a more severe scenario, in which NCF declined a further 30% from Fitch's NCF, a downgrade of the junior 'AAAsf' certificates to 'BBBsf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities on page 12.

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

Fitch was provided with due diligence information from Ernst & Young LLP. The due diligence 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 our 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.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.

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 Large Loans in U.S. Commercial Mortgage Transactions (pub. 18 Aug 2016)

https://www.fitchratings.com/site/re/885802

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013247

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1013247&flm_nm=15e_1013247_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013247

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Abigail Kagan
Associate Director
+1-212-908-0516
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Isaac Wood
Analyst
+1-212-612-7853
or
Committee Chairperson
Ryan Frank
Senior Director
+1-312-368-3133
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Abigail Kagan
Associate Director
+1-212-908-0516
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Isaac Wood
Analyst
+1-212-612-7853
or
Committee Chairperson
Ryan Frank
Senior Director
+1-312-368-3133
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com