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Kroll Bond Rating Agency Assigns Preliminary Ratings to FREMF 2016-K56 and Freddie Mac Structured Pass-Through Certificates K-056
[July 25, 2016]

Kroll Bond Rating Agency Assigns Preliminary Ratings to FREMF 2016-K56 and Freddie Mac Structured Pass-Through Certificates K-056


Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to nine classes of FREMF Series 2016-K56 mortgage pass-through certificates and five classes of Freddie Mac structured pass-through certificates (SPCs), Series K-056 (see our ratings listed below). FREMF Series 2016-K56 is a $1.2 billion CMBS multi-borrower transaction. Freddie Mac will guarantee six classes of certificates issued in the underlying Series 2016-K56 securitization and will deposit the guaranteed underlying certificates into a separate trust that will issue the SPCs.

The underlying transaction is collateralized by 82 fixed-rate multifamily mortgage loans. The loans have principal balances that range from $1.7 million to $67.0 million. The largest exposure is represented by Blue Rock Village (5.7%), a 560-unit, Class-B, garden-style multifamily complex located in Vallejo, California, approximately 34 miles northeast of San Francisco. The five largest loans represent 19.6% of the cut-off date balance and also include Verde At Howard Square (2nd largest, 4.0%), Clark Building (3rd largest, 3.5%), Arbrook Park (4th largest, 3.4%), and Colvin Woods (5th largest, 3.0%). The assets are located in 32 states, with three state exposures individually accounting for more than 10.0% of the pool: California (12.6%), Texas (12.1%), and Arizona (11.2%).

KBRA's analysis of the underlying transaction incorporated our U.S. 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 3.4% 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 38.6% less than third party appraisal values. The weighted average KBRA capitalization rate for the transaction is 8.79%. 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 2016-K56, 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 2016-K56

Class       Class Balance (US$)       Expected Rating
A-1       $164,761,000       AAA(sf)
A-2       $798,687,000       AAA(sf)
A-M       $51,640,000       AA(sf)
X1       $963,448,000*       AAA(sf)
XAM       $51,640,000*       AAA(sf)
X2-A       $963,448,000*       AAA(sf)
X2-B       $216,887,541*       AAA(sf)
B       $47,213,000       A-(sf)
C       $29,509,000       BBB(sf)
X3       $165,247,541*       NR
D       $88,525,541       NR

*Notional balance

 

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

Series K-056

Class       Class Balance (US$)       Expected Rating
A-1       $164,761,000       AAA(sf)
A-2       $798,687,000       AAA(sf)
A-M       $51,640,000       AA(sf)
X1       $963,448,000*       AAA(sf)
XAM       $51,640,000*       AAA(sf)
X3       $165,247,541*       NR

*Notional balance

 

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC (News - Alert) 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 2016-K56 Representations & Warranties Disclosure Report.

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

FREMF 2016-K56 Presale Report

CMBS: U.S. CMBS Multi-Borrower Rating Methodology, published December 3, 2015

CMBS Property Evaluation Methodology, published December 3, 2015

Methodology for Rating Interest-Only Certificates in CMBS Transactions, published June 6, 2016

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).


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