Fitch to Rate WFCM 2016-NXS5 Commercial Mortgage Trust Pass-Through Certificates; Presale Issued
--\\$33,080,000 class A-1 'AAAsf'; Outlook Stable;
--\\$121,907,000 class A-2 'AAAsf'; Outlook Stable;
--\\$35,827,000 class A-3 'AAAsf'; Outlook Stable;
--\\$65,000,000 class A-4 'AAAsf'; Outlook Stable;
--\\$85,000,000 class A-5 'AAAsf'; Outlook Stable;
--\\$214,769,000 class A-6 'AAAsf'; Outlook Stable;
--\\$57,007,000 class A-SB 'AAAsf'; Outlook Stable;
--\\$50,320,000 class A-S 'AAAsf'; Outlook Stable;
--\\$662,910,000b class X-A 'AAAsf'; Outlook Stable;
--\\$52,508,000b class X-B 'AA-sf'; Outlook Stable;
--\\$52,508,000 class B 'AA-sf'; Outlook Stable;
--\\$39,381,000 class C 'A-sf'; Outlook Stable;
--\\$26,254,000 class D 'BBBsf'; Outlook Stable;
--\\$47,038,000ab class X-D 'BBB-sf'; Outlook Stable;
--\\$22,185,000ab class X-F 'BB-sf'; Outlook Stable;
--\\$9,539,000ab class X-G 'B-sf'; Outlook Stable;
--\\$20,784,000a class E 'BBB-sf'; Outlook Stable;
--\\$22,185,000a class F 'BB-sf'; Outlook Stable;
--\\$9,539,000a class G 'B-sf'; Outlook Stable.
(a) Privately placed and pursuant to Rule 144A.
(b) Notional amount and interest-only.
The expected ratings are based on information provided by the issuer as of Feb. 8, 2016. Fitch does not expect to rate the \\$41,568,836a class H certificates and the \\$41,568,836ab class X-H certificates.
The certificates represent the beneficial ownership interest in the trust, primary assets of which are 64 loans secured by 116 commercial properties having an aggregate principal balance of approximately \\$875.1 million as of the cut-off date. The loans were contributed to the trust by Wells Fargo Bank, National Association, Natixis Real Estate Capital LLC and Silverpeak Real Estate Finance LLC.
Fitch reviewed a comprehensive sample of the transaction's collateral including site inspections on 66.9% of the properties by balance, cash flow analysis of 75.6%, and asset summary reviews on 75.6% of the pool.
KEY RATING DRIVERS
High Fitch Leverage: The transaction has higher leverage than other recent Fitch-rated transactions. The pool's Fitch debt service coverage ratio (DSCR) of 1.12x is below both the 2015 and 2014 averages of 1.18x and 1.19x, respectively. The pool's Fitch loan-to-value (LTV) of 110.6% is above both the 2015 average of 109.3% and the 2014 average of 106.2%.
Pool Concentration Better than Recent Deals: The top 10 loans comprise 48.1% of the pool, which is below the respective YTD 2016 and 2015 averages of 55.7% and 49.3%. Additionally, the loan concentration index (LCI) is 349, below the YTD 2016 and 2015 averages of 429 and 367.
Single-Tenant Properties: The pool includes nine loans (19.4% of pool) secured by properties that are exclusively occupied by a single-tenant. However, including all 33 properties with single-tenant concentration greater than 75%, the exposure represents 33.4% of the pool. This is significantly higher than the respective 2015 and 2014 averages of 12.8% and 9.3%. Loans in the top 10 secured by properties with single-tenant concentration include One Court Square (8.6% of pool), Walgreens-CVS Portfolio (5.2%), Torrance Crossroads (5.1%), and Keurig Green Mountain (3.2%).
For this transaction, Fitch's net cash flow (NCF) was 16.7% below the most recent year's net operating income (NOI; for properties for which 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 WFCM 2016-NXS5 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 'BBB-sf' could result. The presale report includes a detailed explanation of additional stresses and sensitivities on pages 10-11.
DUE DILIGENCE USAGE
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 64 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.