DBRS Assigns Provisional Ratings to Wells Fargo Commercial Mortgage Trust 2015-NXS3

DBRS, Inc. (DBRS) has today assigned provisional ratings to the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-NXS3 (the Certificates) to be issued by Wells Fargo Commercial Mortgage Trust 2015-NXS3. 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-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-FG at AAA (sf)
-- Class X-H at AAA (sf)
-- Class A-4FL at AAA (sf)
-- Class A-4FX at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class PEX at A (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (sf)

Classes D, E, F, G, H, X-D, X-E, X-FG, X-H, A-4FL and A-4FX will be privately placed.

The Class X-A, X-B, X-E, X-FG and X-H 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 aggregate principal balance of the Class A-4FL and A-4FX certificates will at all times equal the principal balance of the Class A-4FX regular interest.

The collateral consists of 56 fixed-rate loans secured by 59 commercial properties. The trust assets contributed from two loans, representing 6.3% of the pool, are shadow-rated at AA (low) and AAA, respectively. When 6.3% of the pool has no proceeds assigned below the rated floor, the resulting pool subordination is diluted or reduced below that rated floor. Proceeds for each shadow-rated loan are floored at their respective rating within the pool. The conduit pool was analyzed to determine the provisional ratings, reflecting the long-term probability of loan default within the term and its liquidity at maturity. When the cut-off loan balances were measured against the DBRS Stabilized Net Cash Flow (NCF) and their respective actual constants, there were eight loans, representing 17.9% of the total pool, with a 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 58.2% of the pool having refinance DSCRs below 1.00x.

Nine loans, representing 18.2% of the pool, are secured by single-tenant properties, including three of the top 15 loans. The pool’s largest loan, One Court Square (9.8%), was modeled as a single-tenant property, given the significant concentration by one tenant. 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. Additionally, 19 properties, comprising 44.3% of the pool, are located in urban markets which benefit from consistent investor demand, even in times of stress. Two loans in the top 15, 11 Madison Avenue and The Parking Spot LAX, exhibit credit characteristics consistent with investment-grade shadow ratings. Combined, these two loans represent 6.3% of the pool. The Parking Spot LAX has credit characteristics consistent with a AAA shadow rating while 11 Madison Avenue has credit characteristics consistent with a AA (low) shadow rating.

Seven loans, representing 26.9% of the pool (including four loans in the top 15), are structured with IO payments for the full loan term. An additional 25 loans, representing 46.1% of the pool (including eight in the top 15), have partial IO periods ranging from six to 60 months. The DBRS Term DSCR is calculated by using the amortizing debt service obligation and the DBRS Refinance (Refi) 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 Refi DSCR, so loans that lack amortization will be treated more punitively.

The DBRS sample included 18 of the 56 loans in the pool. Site inspections were performed on 17 of the 59 properties in the portfolio, representing 72.9% of the pool by allocated loan balance. The DBRS sample had an average NCF variance of -10.2% and ranged from -26.0% to 0.7%. DBRS identified eight loans, representing 24.5% of the pool, with unfavorable sponsor strength, including four of the top 15 loans. DBRS increased the POD for loans with identified sponsorship concerns. Overall, the pool exhibits a relatively strong DBRS weighted-average term DSCR of 1.69x based on the whole loan balances, which indicates moderate default risk.

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.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E) which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not rely on the due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

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