DBRS Finalizes Provisional Ratings on Wells Fargo Commercial Mortgage Trust 2015-NXS1

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-NXS1 (the Certificates) to be issued by Wells Fargo Commercial Mortgage Trust 2015-NXS1. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-5 at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-E at AAA (sf)
-- Class X-F at AAA (sf)
-- Class X-G at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

Classes E, F, G, X-E, X-F and X-G have been privately placed.

The X-A, X-B, X-E, X-F and X-G balances are notional. DBRS ratings on interest-only (IO) certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificates’ position within the transaction payment waterfall when determining the appropriate rating.

Up to the full certificate balance of the Class A-S, Class B and Class C certificates may be exchanged for the Class PEX certificates. Class PEX certificates may be exchanged for the full certificate balance of the Class A-S, Class B and Class C certificates.

The collateral consists of 68 fixed-rate loans secured by 93 commercial and multifamily properties, comprising a total transaction balance of $955,224,154. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the loan term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized Net Cash Flow and their respective actual constants, six loans, representing 12.6% of the pool, had a DBRS Term Debt Service Coverage Ratio (DSCR) below 1.15 times (x), a threshold indicative of a higher likelihood of mid-term default. Additionally, to assess refinance risk given the current low interest rate environment, DBRS applied its refinance constants to the balloon amounts, resulting in 63.9% of the pool having DBRS refinance DSCRs below 1.00x. However, the DBRS Refinance DSCR for the loans is based on a weighted-average stressed refinance constant of 9.8%, which implies an interest rate of 9.1%, amortizing on a 30-year schedule. This represents a significant stress of 5.0% over the weighted-average interest rate of the loans in the pool.

Twenty-five loans, representing 36.0% of the pool, are secured by single-tenant properties, including four of the top 15 loans. Loans secured by properties occupied by single tenants have been found to suffer from higher loss severities in the event of default. As such, DBRS modeled single-tenant properties with a higher probability of default (POD) and cash flow volatility compared with multi-tenant properties. Exceptions were taken for Stanford Research Park and Whole Foods Cupertino, two single-tenant assets located in Silicon Valley, California, comprising 7.3% of the pool, due to the very strong performing market and tenant quality. Seven loans, representing 24.6% of the pool (including four in the top 15), are structured with IO payments for the full loan term. An additional 27 loans, representing 45.5% of the pool (including eight in the top 15), have partial IO periods ranging from 12 to 60 months. The DBRS Term DSCR is calculated by utilizing the amortizing debt service obligation, and the DBRS Refinance DSCR is calculated considering the balloon balance and lack of amortization when determining refinance risk. DBRS determines POD based on the lower of Term or Refinance DSCR, so loans that lack amortization will be treated more punitively.

The DBRS sample included 35 of the 68 loans in the pool, representing 81.3% of the pool by loan balance. The DBRS average sample net cash flow haircut for the pool was -12.1%. The deal exhibits a substantial urban concentration, which is considered favorable. Thirteen properties, comprising 30.7% of the pool, are located in urban markets, which benefit from consistent investor demand even in times of stress. Urban markets represented in the deal include New York, Chicago, Los Angeles, Seattle and Palo Alto. Furthermore, loans secured by properties located in tertiary and rural markets represent only 5.8% of the overall pool balance, none of which are in the top 15. Two loans in the top ten exhibit credit characteristics consistent with investment-grade shadow ratings: Patriots Park and 45 Waterview Boulevard. Combined, these two loans represent 12.8% of the pool. Patriots Park has credit characteristics consistent with a AAA shadow rating, while 45 Waterview Boulevard is given an A (low) rating.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is North American 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 Other Research or by contacting us at info@dbrs.com.