NEW YORK--(BUSINESS WIRE)--Fitch Ratings has issued a presale report on the B2R Mortgage Trust 2016-1 Commercial Mortgage Pass-Through Certificates. Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$133,577,000 class A 'AAAsf'; Outlook Stable;
--$133,577,000a class X-A 'AAAsf'; Outlook Stable;
--$22,927,000a class X-B 'A-sf'; Outlook Stable;
--$9,470,000 class B 'AA-sf'; Outlook Stable;
--$13,457,000 class C 'A-sf'; Outlook Stable;
--$14,953,000 class D 'BBB-sf'; Outlook Stable.
(a) Notional amount and interest-only.
The expected ratings are based on information provided by the issuer as of July 14, 2016. Fitch does not expect to rate the following certificates: the $42,864,375 interest-only class X-C, $10,467,000 class E, the $10,217,000 class F, the $2,742,000 class G, or the $4,485,375 class H certificates.
The certificates represent the beneficial ownership in the trust, primary assets of which are 164 loans secured by 2,528 mortgaged properties consisting of 2,024 single-family residential properties, 254 2-4 unit properties, 173 townhomes, 64 condominium properties, and 13 multifamily properties, and having an aggregate principal balance of approximately $199.4 million as of the cutoff date. The loans were contributed to the trust by B2R Finance L.P.
Fitch reviewed a comprehensive sample of the transaction's collateral, including cash flow analysis on 100% of the pool and asset summary reviews of approximately 60% of the pool. Details of our analysis are highlighted in the presale report.
KEY RATING DRIVERS
Newer Asset Class: B2R 2016-1 represents the sixth multiborrower single family rental (SFR) transaction in the U.S. and the third sponsored by B2R Finance, L.P. A number of single borrower SFR transactions have been issued since late 2013 and Fitch highlights significant differences to those transactions in this report. Similar to single borrower SFR, sector and property level operating history are limited; however, historical investor loan performance provides a reasonable proxy for expected through-the-cycle performance.
Fitch Leverage: The Fitch debt service coverage ratio (DSCR) and loan to value (LTV) of 0.99x and 116.4%, are comparable to 1.03x and 116.5% for B2R 2015-2 and 1.02x and 114.9% B2R 2015-1, and to the average 2016 year-to-date (YTD) Freddie Mac 10-year K-Series transactions of 1.02x and 116.7%. The higher leverage is partially attributed to higher Fitch constant and capitalization rate assumptions of 10.50% and 9.67%, compared to average constants and capitalization rates of 9.28% and 8.29%, respectively, for 2016 YTD Freddie Mac transactions. Fitch net cash flow debt yield for this transaction of 8.70%, relative to B2R 2015-2 of 8.75% and B2R 2015-1 of 8.78%, compares favorably to the average Fitch debt yield of 7.21% for 2016 YTD Freddie Mac transactions.
High Sponsor Concentration: The transaction has a sponsor concentration index (SCI) of 754, which is higher than the B2R 2015-2 and 2015-1 deals which had SCIs of 481 and 259, respectively, and also above the YTD 2016 SCI of 491 for Fitch-rated fixed-rate multiborrower transactions. This is largely due to the top sponsor, Conrex Residential Property REIT, Inc. (Conrex), who contributes three loans to the deal equating to 23.1% of the pool. These loans include the largest, third largest, and 20th largest loans.
For this transaction, Fitch's net cash flow (NCF) was 13.8% below the issuer's NCF. Unanticipated further declines in property-level NCF could result in higher defaults and loss severity on defaulted loans, and could result in potential rating actions on the certificates.
Fitch evaluated the sensitivity of the ratings assigned to B2R 2016-1 certificates and found that the transaction displays an 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 '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 'AAAsf' certificates to 'BBBsf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities on pages 15-17.
DUE DILIGENCE USAGE
Fitch was provided with third-party due diligence information from Ernst & Young 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 164 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 at the bottom of the related rating action commentary.
Additional information is available at www.fitchratings.com.
B2R Mortgage Trust 2016-1
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Analyzing Multiborrower U.S. and Canadian Commercial Mortgage Transactions (pub. 01 Jul 2016)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating Criteria for Structured Finance Servicers (pub. 01 Jul 2016)
Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)
U.S. and Canadian Fixed-Rate Multiborrower CMBS Surveillance and U.S. Re-REMIC Criteria (pub. 13 Nov 2015)
B2R Mortgage Trust 2016-1 -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1