NEW YORK--(BUSINESS WIRE)--Fitch Ratings has issued a presale report on FREMF 2013-K713 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-713.
Fitch expects to rate the transaction and assign Rating Outlooks as follows:
FREMF 2013-K713 Multifamily Mortgage Pass-Through Certificates
--$132,716,000 class A-1 'AAAsf'; Outlook Stable;
--$1,208,017,000class A-2 'AAAsf'; Outlook Stable;
--$1,340,733,000* class X1 'AAAsf'; Outlook Stable;
--$1,340,733,000* class X2-A 'AAAsf'; Outlook Stable;
--$100,055,000 class B 'A-sf'; Outlook Stable;
--$40,022,000 class C 'BBBsf'; Outlook Stable.
Freddie Mac Structured Pass-Through Certificates, Series K-713
--$132,716,000 class A-1 'AAAsf'; Outlook Stable;
--$1,208,017,000 class A-2 'AAAsf'; Outlook Stable;
--$1,340,733,000* class X1 'AAAsf'; Outlook Stable.
*Notional amount and interest only.
The expected ratings are based on information provided by the issuer as of May 24, 2013. Fitch does not expect to rate the following classes of FREMF 2013-713: the $260,142,686 interest-only class X2-B, the $260,142,686 interest-only class X3, or the $120,065,686 class D. Fitch does not expect to rate the $260,142,686 interest-only class X3 of the Structured Pass-Through Certificates, Series K-713.
The FREMF 2013-K713 Multifamily Mortgage Pass-Through Certificates, Series 2013-K713 (FREMF 2013-K713) represent the beneficial interests in a pool of 74 commercial mortgages secured by 81 properties. The Freddie Mac structured pass-through certificates, series K-713 (Freddie Mac SPC K-713) represent pass-through interests in the corresponding class of securities issued by FREMF 2013-K713. Each Freddie Mac SPC K-713 security has the same designation as its underlying FREMF 2013-K713 class. All loans were originated by various seller/servicers according to the guidelines of the Freddie Mac Capital Markets Execution (CME) product. The certificates follow a sequential-pay structure.
Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 82% of the properties by balance and cash flow analysis of 84.4% of the pool.
The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.17x, a Fitch stressed loan-to value (LTV) of 115.6%, and a Fitch debt yield of 7.83%. Fitch's aggregate net cash flow represents a variance of 4.8% to issuer cash flows.
KEY RATING DRIVERS
Fitch Leverage: The Fitch DSCR and LTV are 1.17x and 115.6%, respectively. Fitch's LTV is slightly above the five most recent seven-year K-series Freddie Mac deals rated by Fitch, which average 113.7%, and Fitch's DSCR of 1.17x is well above the average of 1.05x for the comparative sample
Property Quality: Fitch performed property inspections on assets representing 82% of the transaction balance. Eleven properties, 22.8% of the pool balance, received property quality scores of 'B+' or better. Forty assets, representing 43.1% of the transaction pool by balance, received property quality scores of 'B.' Eight assets, 11.6% of the deal balance, received property quality scores of 'B-,' and three assets accounting for 4.6% of the deal received property quality scores of 'C+'.
Stable Assets: Assets in the pool are generally located in stable submarkets that outperform their respective markets. Properties that were 90% or more physically occupied make up 92.6% of the pool and 38.5% are collateralized by properties that were 95% or more physically occupied as of the most current data provided by the issuer. The collateral pool demonstrates a weighted average occupancy rate of 94.5% based on the most recently provided rent rolls.
Property Type Concentration: Of the pool, 100% is backed by multifamily properties. While nine loans (10.2%) have a student housing element, only two loans (2.7% of the pool) have a student tenant concentration in excess of or equal to 65%.
Sponsor Concentration: The SCI score of 513 for this transaction is higher than the average of 408 for the five most recently rated, seven-year, K-series Freddie Mac transactions. The largest sponsor concentration relates to loans one, 13, 16, and 27 which combine to represents 16.6% of the transaction balance.
Partial Interest: Loans with a partial interest-only periods comprise 58% of the pool while another 22.7% of the pool is consists of full-term interest-only loans. Taking into account the interest-only periods of the loans in the pool, the pool principal balance is expected to amortize 8.9% during the collective loan terms.
Strong Origination Practices: All loans were originated by various sellers/originators according to Freddie Mac CME product guidelines and adhere to the originator best practices identified by Fitch. Freddie Mac multifamily loans had an average delinquency of 0.16% as of first-quarter 2013 compared to 8.91% on Fitch-rated CMBS multifamily loans as of the same period. Based on these program attributes, Fitch applies a programmatic credit to Freddie Mac transactions.
Low Mortgage Coupons: The pool's weighted average coupon is 3.35%, well below historical averages. Fitch accounted for increased refinance risk in a higher interest rate environment by reviewing an interest rate sensitivity analysis, which assumes an interest rate floor of 4.50% for multifamily properties, for the term risk, in conjunction with Fitch's stressed refinance rates, which are 8.54% on a weighted average basis for this transaction.
RATING SENSITIVITIES
Fitch performed two model-based break-even analyses to determine the level of cash flow and value deterioration the pool could withstand prior to $1 of loss being experienced by the 'BBBsf' and 'AAAsf' rated classes. Fitch found that the FREMF 2013-K713 pool could withstand a 36.9% decline in value (based on appraised values at issuance) and an approximately 9.5% decrease to the most recent actual cash flow prior to experiencing a $1 of loss to the 'BBBsf' rated class. Additionally, Fitch found that the pool could withstand a 42.9% decline in value and an approximately 18% decrease in the most recent actual cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report.
The Master Servicer and Special Servicer will be Wells Fargo Bank, National Association and Midland Loan Services, a Division of PNC Bank, National Association, rated 'CMS2' and 'CSS1', respectively, by Fitch.
The presale report is available at 'www.fitchratings.com.'
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions', Aug. 8, 2012;
--'U.S. Commercial Mortgage Servicer Rating Criteria', Feb. 18, 2011;
--'U.S. Fixed-Rate Multiborrower CMBS Surveillance and ReREMIC Criteria', Dec. 18, 2012;
--'Global Structured Finance Rating Criteria', Aug. 4, 2011;
--'Criteria for Special-Purpose Vehicles in Structured Finance Transactions', June 13, 2011.
Applicable Criteria and Related Research: FREMF 2013-K713 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-713 (US CMBS)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709337
Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685995
U.S. Commercial Mortgage Servicer Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=584005
U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696969
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661
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