Kroll Bond Rating Agency Assigns Preliminary Ratings to FREMF 2017-K65 and Freddie Mac Structured Pass-Through Certificates K-065

NEW YORK--()--Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to nine classes of FREMF Series 2017-K65 mortgage pass-through certificates and five classes of Freddie Mac structured pass-through certificates (SPCs), Series K-065 (see ratings list below). FREMF Series 2017-K65 is a $1.3 billion CMBS multi-borrower transaction. Freddie Mac will guarantee six classes of certificates issued in the underlying Series 2017-K65 securitization and will deposit the guaranteed underlying certificates into a separate trust that will issue the SPCs.

The underlying transaction is collateralized by 72 fixed-rate multifamily mortgage loans. The loans have principal balances that range from $2.0 to $93.8 million. The largest exposure is represented by Seneca Village (7.2%), a 684-unit, Class-B, garden-style multifamily complex located in Gaithersburg, Maryland, approximately 22 miles northwest of Washington, DC. The five largest loans represent 23.3% of the cut-off date balance and also include The Overlook At Saint Thomas (4.4%), Capistrano Pointe (4.3%), Olin Fields (3.8%), and Sedona (3.6%). The assets are located in 30 states, with the three largest concentrations in California (20.3%), Maryland (8.4%), and Colorado (7.3%).

KBRA’s analysis of the underlying transaction incorporated our CMBS Multi-Borrower rating process that begins with our analysts' evaluation of the underlying collateral properties' financial and operating performance, which is used to determine KBRA’s estimate of sustainable net cash flow (KNCF) and KBRA value using our CMBS Property Evaluation Methodology. KBRA’s weighted average KNCF for the portfolio is 3.6% less than the issuer’s NCF. KBRA capitalization rates were applied to each asset’s KNCF to derive individual property values that, on an aggregate basis, were 40.9% less than third party appraisal values. The weighted average KBRA capitalization rate for the transaction is 8.86%. The KBRA credit model deploys rent and occupancy stresses, probability of default regressions, and loss-given default calculations to determine losses for each collateral loan, which are then used to assign our credit ratings.

For complete details of the analysis, please see our Presale Report, FREMF 2017-K65, published today at www.kbra.com. The report includes our KBRA Comparative Analytic Tool (KCAT). KCAT is an easy to use, Excel-based workbook that provides the following information:

  • KBRA Deal Tape – contains KBRA loan level details for every loan in the pool, and the ability for users to input adjustments to KNCF and KBRA Cap Rates and see the related impact on key deal metrics.
  • KBRA Credit Metrics Comparison Tool – Enables the user to compare the subject transaction to a user-defined transaction comp set.
  • Excel based property cash flow statements for the top 20 loans.

The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: FREMF 2017-K65

Class       Class Balance (US$)       Expected KBRA Rating
A-1       $126,500,000       AAA (sf)
A-2       $940,562,000       AAA (sf)
X1       $1,067,062,000*       AAA (sf)
X2-A       $1,067,062,000*       AAA (sf)
A-M       $57,193,000       AA- (sf)
XAM       $57,193,000*       AAA (sf)
X2-B       $240,212,062*       AAA (sf)
B       $52,291,000       BBB+ (sf)
C       $32,682,000       BBB- (sf)
D       $98,046,062       NR
X3       $183,019,062*       NR

*Notional balance

Preliminary Ratings Assigned: Freddie Mac Structured Pass-Through Certificates, Series K-065

Class       Class Balance (US$)       Expected KBRA Rating
A-1       $126,500,000       AAA (sf)
A-2       $940,562,000       AAA (sf)
X1       $1,067,062,000*       AAA (sf)
A-M       $57,193,000       AA- (sf)
XAM       $57,193,000*       AAA (sf)
X3       $183,019,062*       NR

*Notional balance

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms set forth in the related offering documents when issuing credit ratings when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report entitled FREMF 2017-K65 Representations & Warranties Disclosure Report.

Related publications (available at www.kbra.com):

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Analytical:
Kroll Bond Rating Agency
Alec Abrams, 646-731-2401
aabrams@kbra.com
or
Yee Cent Wong, 646-731-2374
ywong@kbra.com
or
Robin Regan, 646-731-2358
rregan@kbra.com
or
Patrick McQuinn, 646-731-2445
pmcquinn@kbra.com

Contacts

Analytical:
Kroll Bond Rating Agency
Alec Abrams, 646-731-2401
aabrams@kbra.com
or
Yee Cent Wong, 646-731-2374
ywong@kbra.com
or
Robin Regan, 646-731-2358
rregan@kbra.com
or
Patrick McQuinn, 646-731-2445
pmcquinn@kbra.com