DBRS Finalizes Ratings on FREMF 2011-K15 Mortgage Trust

DBRS has today finalized the provisional ratings on the following classes of Multifamily Mortgage Pass-Through Certificates, Series 2011-K15 (the Certificates) issued by FREMF 2011-K15 Mortgage Trust, Series 2011-K15. The trends are Stable.

– Class A-1 at AAA (sf)
– Class A-2 at AAA (sf)
– Class B at A (high) (sf)
– Class X1 at AAA (sf)
– Class X2 at AAA (sf)

The collateral consists of 91 fixed-rate loans secured by 91 multifamily properties. The portfolio has a balance of $1,164,908,834. The loans benefit from strong origination practices. Loans on Freddie Mac’s balance sheet, which are originated according to the same policies as those for securitization, have an extremely low delinquency rate of 0.3%, as of June 30, 2011. This compares very favorably with the delinquency rate for CMBS multifamily loans of approximately 12.5% at that same point in time. In addition, cash flow underwriting is prudent, as evidence by an average DBRS net cash flow (NCF) variance of just -2.6% on the sampled loans. In general, revenue has been underwritten to levels that are lower than both recent T-12 revenue and the revenue based on a recent annualized rent roll.

The pool suffers from concentration by property type, with multifamily properties representing 100% of the collateral. However, multifamily properties benefit from staggered lease rollover and generally low expense ratios compared with other property types. While revenue is quick to decline in a downturn because of the short-term nature of the leases, it is also quick to respond when the market improves. Only three loans, representing 4.6% of the pool, are secured by non-traditional multifamily properties such as assisted-living facilities and student housing. Refinance risk is elevated for the loans representing 39.3% of the pool that have a DBRS refinance debt service coverage ratio (DBRS Refi DSCR) below 1.0 times (x). These loans may be dependent on modest cash flow growth in order to refinance in a higher interest rate environment. Mitigating this risk is the fact that the weighted-average DBRS Refi DSCR is based on a weighted-average refinance constant of 9.88%, which implies an interest rate of 9.26% amortizing on a 30-year schedule. This represents a very significant stress of 4.1% over the weighted-average contractual interest rate of the loans in the pool.

Class A-1, Class A-2, Class X-1 and Class X-3 are being purchased by Freddie Mac and conveyed into separate trust funds. Freddie Mac will offer structured pass-through certificates (SPCs) that represent pass-through interests in Class A-1, Class A-2, Class X-1 and Class X-3. With respect to the SPCs, Freddie Mac guarantees (i) timely payment of interest, (ii) payment of related principal on the distribution date following the maturity date of each mortgage loan to the extent such principal would have been distributed to the underlying Class A-1 and Class A-2 certificates, (iii) reimbursement of any realized losses and additional trust fund expenses allocated to the Underlying Guaranteed Certificates and (iv) ultimate payment of principal by the assumed final distribution date for the underlying Class A-1 and Class A-2 certificates. Please see the press release titled “DBRS Finalizes Ratings on Freddie Mac Structured Pass-Through Certificates, Series K-015,” dated November 9, 2011, for further information on the SPCs.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets without regard to the Freddie Mac Guarantee. All classes will be subject to ongoing surveillance, upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in U.S. dollars unless otherwise noted.

Class B, Class C and Class X2 are privately placed pursuant to Rule 144a.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.