Fitch to Rate Wells Fargo Commercial Mortgage Trust Pass-Through Certificates, Series 2016-NXS6
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$27,042,000 class A-1 'AAAsf'; Outlook Stable;
--$115,788,000 class A-2 'AAAsf'; Outlook Stable;
--$150,000,000 class A-3 'AAAsf'; Outlook Stable;
--$206,019,000 class A-4 'AAAsf'; Outlook Stable;
--$31,139,000 class A-SB 'AAAsf'; Outlook Stable;
--$48,267,000 class A-S 'AAAsf'; Outlook Stable;
--$529,988,000a class X-A 'AAAsf'; Outlook Stable;
--$120,194,000a class X-B 'A-sf'; Outlook Stable;
--$35,964,000 class B 'AA-sf'; Outlook Stable;
--$35,963,000 class C 'A-sf'; Outlook Stable;
--$43,535,000ab class X-D 'BBB-sf'; Outlook Stable;
--$20,821,000ab class X-E 'BB-sf'; Outlook Stable;
--$43,535,000b class D 'BBB-sf'; Outlook Stable;
--$20,821,000b class E 'BB-sf'; Outlook Stable.
--$8,518,000b class F 'B-sf'; Outlook Stable.
(a) Notional amount and interest-only.
(b) Privately placed and pursuant to Rule 144A.
The expected ratings are based on information provided by the issuer as of Sept. 21, 2016. Fitch does not expect to rate the $19,875,000 class X-FG, $22,713,952 class X-H, $11,357,000 class G or the $22,713,952 class H.
The certificates represent the beneficial ownership interest in the trust, primary assets of which are 50 loans secured by 63 commercial properties having an aggregate principal balance of approximately $757.1 million as of the cut-off date. The loans were contributed to the trust by Natixis Real Estate Capital LLC, Silverpeak Real Estate Finance LLC, UBS AG, by and through its branch office located at 1285 Avenue of the Americas, New York, NY, and Wells Fargo Bank, National Association.
Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 76.9% of the properties by balance and cash flow analysis of 86.3% of the pool.
The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.25x, a Fitch stressed loan-to-value (LTV) of 106.8%, and a Fitch debt yield of 8.93%. Fitch's aggregated net cash flow represents a variance of 10.04% to issuer cash flows.
KEY RATING DRIVERS
Lower Fitch Leverage: The Fitch stressed DSCR on the trust-specific debt is 1.25x, higher than the 2015 and year-to-date (YTD) 2016 averages of 1.18x and 1.18x, respectively. The Fitch stressed LTV ratio on the trust-specific debt is 106.8%, lower than the 2015 average of 109.3% and in line with the YTD 2016 average of 106.5% for the other Fitch-rated deals.
Highly Concentrated Pool: The largest 10 loans in the transaction comprise 57.7% 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 456, which is higher than the 2015 average of 367 and 2016 YTD average of 428.
Interest-Only Loans: Ten loans that make up 50.0% of the pool are interest only. This is higher than the average of 23.3% for 2015 and 30.6% for YTD 2016. Overall, the pool is scheduled to pay down by 9.0%, less than the averages of 11.7% for 2015 and 10.4% YTD for 2016 for the other Fitch-rated U. S. deals.
For this transaction, Fitch's net cash flow (NCF) was 9.7% 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 could result in potential rating actions on the certificates.
Fitch evaluated the sensitivity of the ratings assigned to WFCM 2016-NXS6 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 senior '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 senior 'AAAsf' certificates to 'BBBsf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities on page 11.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with third-party due diligence information from Deloitte & Touche 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.