Fitch to Rate MSCI 2015-XLF2 Commercial Mortgage Pass-Thru Certificates; Presale Issued
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
--$103,000,000a class SNMA 'AAAsf'; Outlook Stable;
--$21,000,000ad class SNMB 'AA-sf'; Outlook Stable;
--$15,000,000 ad class SNMC 'A-sf'; Outlook Stable;
--$22,000,000 ad class SNMD 'BBB-sf'; Outlook Stable;
--$85,000,000adclass AFSA 'AAAsf'; Outlook Stable;
--$21,000,000adclass AFSB 'AA-sf'; Outlook Stable;
--$15,000,000ad class AFSC 'A-sf'; Outlook Stable;
--$23,000,000ad class AFSD 'BBB-sf'; Outlook Stable;
--$59,000,000abclass AFX1 'BBB-sf'; Outlook Stable;
--$59,000,000 ab class AFX2 'BBB-sf'; Outlook Stable.
a - Privately placed pursuant to Rule 144A.
b - Notional amount and interest only. Interest-only classes AFX1 and AFX2 are equal to the notional balances of the classes AFS1, AFS2, AFS3.
c - The SNM certificates represent the beneficial interests in the Starwood National Mall Portfolio non-pooled trust assets.
d - The AFS certificates represent the beneficial interests in the Ashford Full Service II portfolio non-pooled trust assets.
The expected ratings are based on information provided by the issuer as of Oct. 20, 2015.
The certificates represent beneficial ownership in the trust, the primary assets of which are two floating-rate loans secured by 10 commercial properties. The Starwood National Mall Portfolio loan has a trust balance of $161 million and the Ashford Full Service II Portfolio loan has a trust balance of $144 million. Each loan has been split between loan specific senior and junior notes. The loans were originated by Morgan Stanley Bank, N.A.
The Master Servicer and Special Servicer will be, respectively, Midland Loan Services rated 'CMS1' and 'CSS1' by Fitch.
The Starwood National Mall Portfolio has a Fitch stressed debt service coverage ratio (DSCR) of 1.35x, a Fitch stressed loan to value (LTV) of 66.7%, and a Fitch debt yield of 13.3%. The Ashford Full Service II Portfolio has a Fitch stressed DSCR of 1.74x, a Fitch stressed LTV of 61.1% and a Fitch debt yield of 17.7% Fitch's net cash flow represents a variance of approximately 9.8% to the issuer cash flow for the Starwood National Mall Portfolio and 9.1% for the Ashford Full Service II Portfolio.
KEY RATING DRIVERS
Concentrated Transaction: The transaction includes just two loans, representing 52.8% and 47.2% of the transaction. The loans are not pooled and each loan is supported only by its respective collateral.
Sponsor Investment: Since 2009, Ashford Hospitality Trust (Ashford, or AHT) has completed $65.2 million in improvements throughout the Ashford Full Service II Hotel Portfolio, mainly to the guestrooms, inclusive of the Crowne Plaza Beverly Hills recent completion of a $25 million renovation and conversion to a Marriott. Starwood Capital Group (Starwood, or SCG) has plans to redevelop the vacant anchor boxes at the Willow Bend and Fairlane Town Center properties.
All Loans Have Additional Debt: Both loans have additional debt in the form of B-notes as well as mezzanine debt for the Ashford loan, outside of the trust. The Fitch LTV and DSCR on the fully leveraged debt stacks 98.6% and 0.91x on the Starwood loan and 127.7% and 0.83x, respectively. The positions are fully subordinated and subject to standard intercreditor agreements.
Experienced Sponsorship: The respective sponsors of the loans are affiliates of Ashford and Starwood. Ashford is a publicly traded real estate investment trust (REIT) that focuses on investing in the hospitality industry. Starwood was started in 1991 and currently has approximately $36 billion in assets under management. Starwood owns and operates 31 retail properties totaling 27 million square feet.
Fitch performed two model-based break-even analyses to determine the level of cash flow and value deterioration a pool could withstand prior to $1 of loss being experienced by the AAAsf' rated class. Fitch found that the Starwood National Mall Portfolio could withstand a 70.2% decline in value (based on appraised values at issuance) and an approximately 53.4% decrease to the most recent actual cash flow prior to experiencing a $1 of loss to the 'AAAsf' rated class. The Ashford Full Service II Portfolio could withstand a 79.1% decline in value (based on appraised values at issuance) and an approximately 64.7% decrease to the most recent actual cash flow prior to experiencing $1 of loss to the 'AAAsf' rated class.
Fitch evaluated the sensitivity of the ratings for the 'AAAsf' rated classes and found that for the Starwood National Mall Portfolio a 17.2% decline in Fitch net cash flow (NCF) would result in a one-category downgrade, while a 35.9.% decline would result in a downgrade to below investment grade. For the Ashford Full Service Portfolio II a 16.6% decline in Fitch NCF would result in a one-category downgrade, while a 41.1% decline would result in a downgrade to below investment grade.
The Rating Sensitivity section in the presale report includes a detailed explanation of additional stresses and sensitivities. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report. The presale report is available to all investors on Fitch's web site 'www.fitchratings.com'.
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 Form-15E and focused on a comparison and re-computation of certain characteristics with respect to the mortgage loan and related mortgaged properties in the data file. 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 (RAC).