Fitch to Rate GSMS 2016-GS3 Commercial Mortgage Pass-Through Certificates; Presale Issued
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
-- $28,475,000 class A-1 'AAAsf'; Outlook Stable;
-- $77,052,000 class A-2 'AAAsf'; Outlook Stable;
-- $265,000,000 class A-3 'AAAsf'; Outlook Stable;
-- $320,243,000 class A-4 'AAAsf'; Outlook Stable;
-- $57,066,000 class A-AB 'AAAsf'; Outlook Stable;
-- $841,316,000b class X-A 'AAAsf'; Outlook Stable;
-- $98,821,000b class X-B 'A-sf'; Outlook Stable;
-- $93,480,000c class A-S 'AAAsf'; Outlook Stable;
-- $53,417,000c class B 'AA-sf'; Outlook Stable;
-- $192,301,000c class PEZ 'A-sf'; Outlook Stable;
-- $45,404,000c class C 'A-sf'; Outlook Stable;
-- $53,417,000a class D 'BBB-sf'; Outlook Stable;
-- $53,417,000ab class X-D 'BBB-sf'; Outlook Stable;
-- $24,038,000a class E 'BB-sf'; Outlook Stable;
-- $10,683,000a class F 'B-sf'; Outlook Stable;
--$40,063,502a class G 'NR'.
(a) Privately placed and pursuant to Rule 144A.
(b) Notional amount and interest only.
(c) Class A-S, B and C certificates may be exchanged for class PEZ certificates, and class PEZ certificates may be exchanged for class A-S, B and C certificates.
These expected ratings are based on information provided by the issuer as of Sept. 13, 2016. Fitch does not expect to rate the $40,063,502 class G.
The certificates represent the beneficial ownership interest in the trust, primary assets of which are 34 loans secured by 152 commercial properties having an aggregate principal balance of approximately $1.07 billion as of the cut-off date. The loans were contributed to the trust by Goldman Sachs Mortgage Company.
Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 70.6% of the properties by balance and cash flow analysis of 92.9% of the pool.
The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.30x, a Fitch stressed loan-to-value (LTV) of 97.2%, and a Fitch debt yield of 9.9%. Fitch's aggregate net cash flow represents a variance of 11.4% to issuer cash flows.
KEY RATING DRIVERS
Lower Fitch Leverage: The Fitch stressed DSCR on the trust-specific debt is 1.30x, higher than the 2015 and YTD 2016 averages of 1.18x and 1.18x, respectively. The Fitch stressed LTV ratio on the trust-specific debt is 97.2%, lower than the 2015 and YTD 2016 averages of 109.3% and 106.5%, respectively, for the other Fitch-rated deals.
Highly Concentrated Pool: The largest 10 loans in the transaction comprise 62.1% of the pool by balance. Compared to other Fitch-rated U. S. multiborrower deals, the concentration in this transaction is higher than the 2015 and YTD 2016 average concentrations of 49.3% and
55.3%, respectively. The pool's concentration results in a loan concentration index (LCI) of 486, which is higher than the 2015 average of 367 and 2016 YTD average of 428.
Credit Opinion Loans: Three loans in the pool, representing 21.5% of the total pool balance, received investment-grade credit opinions. The largest loan in the pool, 10 Hudson Yards (8.2% of the pool), received an investment-grade credit opinion of 'AAAsf' on a fusion basis. The second largest loan, 540 West Madison (8.1% of the pool), received an investment-grade opinion of 'A+sf' on a fusion basis. Veritas Multifamily Pool 1 (5.2% of the pool) received an investment-grade credit opinion of 'AAAsf' on a fusion basis.
For this transaction, Fitch's net cash flow (NCF) was 5.8% 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 GSMS 2016-GS3 certificates and found that the transaction displays average sensitivities 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 due diligence information from Ernst & Young LL. The due diligence 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 our 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.