Fitch to Rate Citigroup Commercial Mortgage Trust 2016-C2; Presale Issued
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$20,227,000 class A-1 'AAAsf'; Outlook Stable;
--$15,097,000 class A-2 'AAAsf'; Outlook Stable;
--$170,000,000 class A-3 'AAAsf'; Outlook Stable;
--$189,298,000 class A-4 'AAAsf'; Outlook Stable;
--$31,793,000 class A-AB 'AAAsf'; Outlook Stable;
--$456,873,000b class X-A 'AAAsf'; Outlook Stable;
--$68,531,000b class X-B 'A-sf'; Outlook Stable;
--$30,458,000 class A-S 'AAAsf'; Outlook Stable;
--$35,027,000 class B 'AA-sf'; Outlook Stable;
--$33,504,000 class C 'A-sf'; Outlook Stable;
--$32,743,000 class D 'BBB-sf'; Outlook Stable;
--$32,743,000ab class X-D 'BBB-sf'; Outlook Stable;
--$9,137,500ac class E-1 'BB+sf'; Outlook Stable;
--$9,137,500ac class E-2 'BB-sf'; Outlook Stable;
--$18,275,000ac class E 'BB-sf'; Outlook Stable;
--$5,330,000ac class F 'B-sf'; Outlook Stable;
--$23,605,000ac class EF 'B-sf'; Outlook Stable.
A) Privately placed pursuant to Rule 144A.
B) Notional amount and interest-only.
C) The class E-1 and E-2 certificates may be exchanged for a related amount of class E certificates, and class E certificates may be exchanged for a ratable portion of class E-1 and E-2 certificates. Additionally, class E-1, E-2, F-1 and F-2 certificates may be exchanged for a related amount of class EF certificates, and class EF certificates may be exchanged for a ratable portion of each class of class E-1, E-2, F-1 and F-2 certificates. A holder of class E-1, E-2, F-1, F-2, G-1 and G-2 certificates may exchange such classes of certificates (on an aggregate basis) for a related amount of class EFG certificates, and a holder of class EFG certificates may exchange that class EFG for a ratable portion of each class of the class E-1, E-2, F-1, F-2, G-1 and G-2 certificates.
The expected ratings are based on information provided by the issuer as of Aug. 4, 2016. Fitch does not expect to rate the $2,665,000 class F-1, $2,665,000 class F-2, $5,330,000 class G-1, $5,330,000 class G-2, $10,660,000 exchangeable class G, $34,265,000 exchangeable class EFG, $8,376,511 class H-1, $8,376,811 class H-2, or the $16,753,022 exchangeable class H certificates.
The certificates represent the beneficial ownership interest in the trust, primary assets of which are 44 loans secured by 53 commercial properties having an aggregate principal balance of $609,165,022 as of the cut-off date. The loans were contributed to the trust by Citigroup Global Markets Realty Corp., Rialto Mortgage Finance, LLC, MC-Five Mile Commercial Mortgage Finance LLC, Walker & Dunlop Commercial Property Funding I CB, LLC.
Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 81.9% of the properties by balance and asset summary reviews and cash flow analysis of 86.5% of the pool.
KEY RATING DRIVERS
High Fitch Leverage: The pool's Fitch DSCR and LTV are 1.15x and 108.5%, respectively. This is slightly worse than the year-to-date (YTD) 2016 average Fitch DSCR of 1.16x and the YTD 2016 average Fitch LTV of 107.5%. Excluding the credit opinion loan (9.8% of the pool), the Fitch DSCR and LTV are 1.10x and 111.3%, respectively.
Investment Grade Credit Opinion Loan Represents 9.8% of the Pool: One loan, Vertex Pharmaceuticals HQ (9.8% of the pool) has an investment-grade credit opinion of 'BBB-sf*' on a stand-alone basis.
For this transaction, Fitch's net cash flow (NCF) was 17.4% 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 CGCMT 2016-C2 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 '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 11.
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 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.