Fitch Rates Wells Fargo Commercial Mortgage Trust 2016-LC25 P-T Certificates

NEW YORK--()--Fitch Ratings has assigned final ratings to the Wells Fargo Commercial Mortgage Trust 2016-LC25 Pass Through Certificates.

Fitch rates the transaction and assigns Rating Outlooks as follows:

--$43,663,000 class A-1 'AAAsf'; Outlook Stable;

--$75,129,000 class A-2 'AAAsf'; Outlook Stable;

--$235,000,000 class A-3 'AAAsf'; Outlook Stable;

--$253,530,000 class A-4 'AAAsf'; Outlook Stable;

--$61,153,000 class A-SB 'AAAsf'; Outlook Stable;

--$71,623,000 class A-S 'AAAsf'; Outlook Stable;

--$668,475,000b class X-A 'AAAsf'; Outlook Stable;

--$157,570,000b class X-B 'A-sf'; Outlook Stable;

--$42,973,000 class B 'AA-sf'; Outlook Stable;

--$42,974,000 class C 'A-sf'; Outlook Stable;

--$52,523,000ab class X-D 'BBB-sf'; Outlook Stable;

--$52,523,000a class D 'BBB-sf'; Outlook Stable.

(a) Privately placed and pursuant to Rule 144A.

(b) Notional amount and interest-only.

These final ratings are based on information provided by the issuer as of Dec. 7, 2016. Fitch does not rate the $10,982,000 class E, $16,712,000 class F, $18,144,000 class G, and $30,559,554 class H certificates. The certificates represent the beneficial ownership interest in the trust, primary assets of which are 80 loans secured by 135 commercial properties having an aggregate principal balance of approximately $954.9 million as of the cut-off date. The loans were contributed to the trust by Ladder Capital Finance LLC, Wells Fargo Bank, National Association, Rialto Mortgage Finance, LLC and National Cooperative Bank, N.A.

Fitch reviewed a comprehensive sample of the transaction's collateral including site inspections on 74.5% of the properties by balance, cash flow analysis of 76.6%, and asset summary reviews on 77.9% of the pool.

KEY RATING DRIVERS

Lower Fitch Leverage: The pool's leverage statistics are lower than those of other recent Fitch-rated, fixed-rate multiborrower transactions. The pool's Fitch debt service coverage ratio (DSCR) and Fitch loan to value (LTV) of 1.44x and 104.7%, respectively, are better than the YTD 2016 Fitch averages DSCR and LTV of 1.20x and 105.7%. Excluding credit opinion loans and loans secured by multifamily cooperative properties, the pool's Fitch DSCR and Fitch LTV are 1.09x and 113.9%.

Above-Average Amortization: The pool is scheduled to amortize by 13.3%, which is above the YTD 2016 average of 10.4% and 2015 average of 11.7% for fixed-rate transactions. Twelve loans, representing 11.34% of the pool, are full-term interest-only, which is below the YTD 2016 average of 32.0% for fixed-rate transactions. Thirty-one loans representing 52.76% of the pool are partial interest-only, higher than the YTD 2016 average of 35.2%. The remainder of the pool consists of 37 balloon loans representing 35.9% of the pool.

Pool Concentration: The largest 10 loans account for 37.9% of the pool, which is below the YTD 2016 average of 54.5% for fixed-rate transactions. The pool exhibits lower pool concentration, with a loan concentration index (LCI) of 230, which is below the YTD 2016 average of 419.

RATING SENSITIVITIES

For this transaction, Fitch's net cash flow (NCF) was 13.5% 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 WFCM 2016-LC25 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 junior 'AAAsf' certificates to 'BBB+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 'BBB-sf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities.

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 91 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.

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 CMBS (pub. 01 Dec 2016)
https://www.fitchratings.com/site/re/890892

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

North America and Asia-Pacific Multiborrower CMBS Surveillance Criteria (pub. 01 Dec 2016)
https://www.fitchratings.com/site/re/891159

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

Related Research

Wells Fargo Commercial Mortgage Trust 2016-LC25 -- Appendix
https://www.fitchratings.com/site/re/890525

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016152

ABS Due Diligence Form 15E 1
https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1016152&flm_nm=15e_1016152_1.pdf

ABS Due Diligence Form 15E 2
https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1016152&flm_nm=15e_1016152_2.pdf

ABS Due Diligence Form 15E 3
https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1016152&flm_nm=15e_1016152_3.pdf

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016152

Endorsement Policy
https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst:
Tara Sweeney, +1-212-908-0347
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Abigail Kagan, +1-212-908-0516
Associate Director
or
Committee Chairperson:
Lauren Cerda, +1-312-606-2317
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Tara Sweeney, +1-212-908-0347
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Abigail Kagan, +1-212-908-0516
Associate Director
or
Committee Chairperson:
Lauren Cerda, +1-312-606-2317
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com