DBRS Finalizes Provisional Ratings on Wells Fargo Commercial Mortgage Trust 2016-C33

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C33 (the Certificates) to be issued by Wells Fargo Commercial Mortgage Trust 2016-C33. 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-F at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class E at BB (low) (sf)
-- Class F at B (low) (sf)

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

The Class X-A, Class X-B, Class X-D, Class X-E, Class X-F and Class 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.

The collateral consists of 79 fixed-rate loans secured by 104 commercial and multifamily properties, comprising a total transaction balance of $712,219,087. The transaction is a sequential-pay pass-through structure. The trust asset contributed from one loan, representing 5.7% of the pool, is shadow-rated AA (low) by DBRS. Proceeds for the shadow-rated loan are floored at its rating within the pool. When 5.7% of the pool has no proceeds assigned below the rated floor, the resulting pool subordination is diluted or reduced below that rated floor. 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 (NCF) and their respective actual constants, six loans, representing 12.2% of the total 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. This resulted in 25 loans, representing 44.0% of the pool, having refinance (Refi) DSCRs below 1.00x; however, the DBRS Refi DSCRs for these loans are based on a weighted-average (WA) stressed refinance constant of 9.83%, which implies an inter¬est rate of 9.28%, amortizing on a 30-year schedule. This represents a significant stress of 5.023% over the WA contractual interest rate of the loans in the pool. The loans’ probability of default (POD) is based on the more constraining of the DBRS Term or DBRS Refi DSCR.

Overall, the pool exhibits a relatively strong DBRS WA Term DSCR of 1.65x based on the whole loan balances, which indicates moderate term default risk. Fourteen loans, representing 5.5% of the pool, are secured by cooperative properties and are very low leverage, with minimal term and refinance default risk. The pool is relatively diverse based on loan size, with a concentration profile equivalent to that of a pool of 32 equal-sized loans, though the top ten represent 45.5% of the pool. Diversity is further enhanced by eight loans, representing 17.4% of the pool, that are secured by multiple properties (33 in total). Increased pool diversity insulates the higher-rated classes from event risk. The third-largest loan, 225 Liberty Street (5.7% of the pool), has credit characteristics consistent with a AA (low) shadow rating.

Eight loans, representing 12.2% of the pool, are secured by properties that are either fully or primarily leased to a single tenant, including the largest loan, Sanofi Office Complex (9.1% of the pool). DBRS also treated the fourth-largest loan, Business & Research Center at Garden City, as single-tenant given the significant concentration of the largest tenant at the property. Loans secured by properties occupied by single tenants have been found to suffer from higher loss severities in the event of default. Thirteen loans, representing 27.9% of the pool, including four of the top 15 loans, are structured with IO payments for the full term. An additional 24 loans, representing 31.8% of the pool, have partial IO periods remaining ranging from one month to 59 months, including six of the top 15 loans. The transaction’s scheduled amortization by maturity is 11.4%, excluding the Sanofi Office Complex amortization recognized post ARD which would result in 17.7% total amortization. The DBRS Term DSCR is calculated by using the amortizing debt service obligation and the DBRS Refi DSCR is calculated considering the balloon balance and lack of amortization when determining refinance risk. DBRS determines POD based on the lower of DBRS Term or DBRS Refi DSCR, so loans that lack amortization will be treated more punitively. Twenty-seven loans, representing 31.0% of the pool, are secured by non-traditional property types, including three loans in the top ten.

The DBRS sample included 28 of the 79 loans in the pool. Site inspections were performed on 41 of the 104 properties in the pool (64.6% of the pool by allocated loan balance). DBRS conducted meetings with the on-site property manager, leasing agent or a representative of the borrowing entity for 45.2% of the pool. The DBRS average sample NCF adjustment for the pool was -8.1% and ranged from
-21.2% to +8.8%. DBRS identified 15 loans, representing 29.5% of the pool, with unfavorable sponsor strength, including seven of the top 15 loans. DBRS increased the POD for the loans with identified sponsorship concerns.

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 15-E) 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 15-E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.