DBRS Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2016-LC25

DBRS Limited (DBRS) confirmed the ratings on the Commercial Mortgage Pass-Through Certificates, Series 2016-LC25 issued by Wells Fargo Commercial Mortage Trust 2016-LC25 as follows:

-- 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-S at AAA (sf)
-- Class A-SB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (sf)
-- Class X-B at A (sf)
-- Class C at A (low) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (high) (sf)
-- Class G at B (sf)

All trends are Stable. The rating confirmations reflect the overall stable performance of the transaction. The collateral consists of 80 fixed-rate loans secured by 135 commericail properties. As of the November 2017 remittance, there has been a collateral reduction of 0.6% as a result of scheduled loan amortization. Twelve loans, representing 11.4% of the pool, are structured with full-term interest-only (IO) payments while an additonal 26 loans, comprising 45.8% of the pool, have remaining partial IO periods ranging from four to 47 months. Seventy-four of the 80 loans, representing 88.8% of the pool, are reporting partial-year 2017 financials. The pool has a DBRS weighted-average (WA) debt service coverage ratio (DSCR) and DBRS WA debt yield of 1.64 times (x) and 9.3%, respectively.

As of the November 2017 remittance, there are three loans on the servicer’s watchlist, representing 2.4% of the current pool balance. One loan, Prospectus ID#31 (1.2% of the pool) is being monitored as a result of an anchor tenant, Michigan Sporting Goods Distributors Inc. (MC Sports) filing for Chapter 11 bankruptcy protection in February 2017 and subsequently vacating the property in May 2017. Occupancy has since decreased to 73.4%, as of the September 2017 rent roll. Additionally, with the departure of MC Sports, both Marshall’s (17.2% of the net rentable area (NRA)) and Michael’s (17.0% of NRA) are now paying reduced rent because of co-tenacy provisions in their respective leases. The borrower has stated they are currently in discussions with a new national sports retailer to occupy the former MC Sports space. The other two watchlisted loans are co-operataive properties located in New York City, New York, and DBRS considers these to be low-leveraged and have low term and refiance default risk.

At issuance, DBRS shadow-rated the 9 West 57th Street loan (Prospectus ID#1, 5.4% of the pool) as investment grade. DBRS confirmed that the performance of this loan remains consistent with investment-grade characteristics.

Classes X-A, X-B and X-D are IO certificates that reference a single-rated tranche or multiple-rated tranches. The IO rating mirrors the lowest-rated reference tranche adjusted upward by one notch if senior in the waterfall.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS has provided updated loan-level commentary and analysis for larger and/or pivotal watchlisted loans and specially serviced loans in the transaction, as well as the Top 15 loans, in the DBRS Viewpoint platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS Viewpoint at viewpoint.dbrs.com.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are 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.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies.For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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

The rated entity or its related entities did participate initially, in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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