CHICAGO--(BUSINESS WIRE)--Fitch Ratings has rated FREMF 2014-K38 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-038 as follows:
FREMF 2014-K38 Multifamily Mortgage Pass-Through Certificates
--$170,000,000 class A-1 'AAAsf'; Outlook Stable;
--$887,556,000 class A-2 'AAAsf'; Outlook Stable;
--$1,057,556,000* class X1 'AAAsf'; Outlook Stable;
--$58,925,000 class B 'Asf'; Outlook Stable;
--$31,013,000 class C 'BBB+sf'; Outlook Stable.
Freddie Mac Structured Pass-Through Certificates, Series K-038
--$170,000,000 class A-1 'AAAsf'; Outlook Stable;
--$887,556,000 class A-2 'AAAsf'; Outlook Stable;
--$1,057,556,000* class X1 'AAAsf'; Outlook Stable;
*Notional amount and interest only.
The ratings are based on information provided by the issuer as of June 1, 2014. Fitch does not expect to rate the following classes of FREMF 2014-K38: the $182,978,938 interest-only class X3, or the $93,040,938 class D. Fitch does not expect to rate the $182,978,938 class X3 of the Structured Pass-Through Certificates, Series K-038.
The certificates represent the beneficial interests in a pool of 105 commercial mortgages secured by 105 properties. The Freddie Mac Structured Pass-Through Certificates, Series K-038 (Freddie Mac SPC K-038) represents a pass-through interest in the corresponding class of securities issued by FREMF 2014-K38. Each Freddie Mac SPC K-038 security has the same designation as its underlying FREMF 2014-K38 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 68.6% of the properties by balance and cash flow analysis of 76.0% of the pool.
The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.15x, a Fitch stressed loan-to value (LTV) of 99.7%, and a Fitch debt yield of 8.49%. Fitch's aggregate net cash flow represents a variance of 7.0% to issuer cash flows.
KEY RATING DRIVERS
Fitch Leverage: The Fitch Ratings stressed LTV ratio is 99.7% and is below the average of 2013 Fitch-rated, 10-year, K-Series Freddie Mac deals, which averaged 112.8%. The Fitch stressed DSCR, at 1.15x, is above the average of 1.12x for the 2013 Fitch-rated, 10-year, K-series Freddie Mac deals.
Partial-Interest and Interest-Only Loans: Eight loans representing 8.7% of the pool are full-term interest only, and 39 loans representing 49.8% of the pool have partial-term interest-only components. Based on the loans' scheduled maturity balance, the pool is expected to amortize 14.34% during the term.
Credit Opinion Loan: The second largest loan in the pool (4.8%) has a Fitch credit opinion rating of 'BBB-sf' on a stand-alone basis. The loan is secured by Knickerbocker Plaza, a 578-unit high-rise apartment complex located on the Upper East Side of Manhattan, within the New York MSA.
Loan Concentration: The top 10 loans constitute 33.3% of the pool, which is slightly lower than that of recent Freddie Mac transactions. The top loan in the pool, Villages at Preserve Crossing, constitutes 6.1% of the pool. The second largest loan is 4.8% of the pool.
Property-Type Concentration: Of the pool, 100% is backed by multifamily properties. Three loans (4.7%) are classified as student housing and one loan (0.09%) is classified as independent living.
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 rate of 0.09% as of fourth-quarter 2013, compared with 6.48% 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.
Collateral Quality: Of the pool, 38.9%, including five of the largest 10 loans, received property quality grades of 'B+' or better. Higher property quality grades result in a lower probability of loss in Fitch's multiborrower conduit model.
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 'BBB+sf' and 'AAAsf' rated classes. Fitch found that the FREMF 2014-K38 pool could withstand a 43.8% decline in value (based on appraised values at issuance) and an approximately 22.1% decrease to the most recent actual cash flow prior to experiencing $1 of loss to the 'BBB+sf' rated class. Additionally, Fitch found that the pool could withstand a 48.2% decline in value and an approximately 28.2% 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 presale report.
The Master Servicer is Keybank National Association, rated 'CMS1+' by Fitch. The Special Servicer is Wells Fargo, National Association rated 'CSS2-', 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, 2013;
--'Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions September 2013;
--'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', May 24, 2013.
Applicable Criteria and Related Research:
Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=718468
Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748778
U.S. Commercial Mortgage Servicer Rating Criteria -- Effective Feb. 18, 2011 to Feb. 14, 2014
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=724961
Global Structured Finance Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748821
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=836563
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