DBRS Confirms Ratings of Wells Fargo Commercial Mortgage Trust 2016-C32

DBRS Limited (DBRS) confirmed the ratings of all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-C32 (the Certificates) issued by Wells Fargo Commercial Mortgage Trust 2016-C32 (the Trust) as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class A-3FL at AAA (sf)
-- Class A-3FX 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 (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class X-D at BBB (low) (sf)
-- Class X-E at BB (sf)
-- Class E at BB (low) (sf)
-- Class X-F at B (sf)
-- Class F at B (low) (sf)

All trends are Stable. DBRS does not rate the first loss piece, Class G.

The rating confirmations reflect the overall stable performance of the transaction. At issuance, the collateral consisted of 112 fixed-rate loans secured by 152 commercial properties. As of the December 2017 remittance, all loans remained in the pool with an aggregate principal balance of $948.8 million, representing a collateral reduction of approximately 1.2% since issuance as a result of scheduled loan amortization. There are currently 24 loans (35.4% of the pool) with remaining interest-only (IO) periods, ranging from eight to 60 months, while four loans (15.7% of the pool) are structured with full IO terms. To date, 107 loans (97.3% of the pool) reported partial-year 2017 financials, while 75 loans (82.5% of the pool) reported YE2016 financials. At issuance, the transaction had a weighted-average (WA) debt service coverage ratio (DSCR) and WA Debt Yield of 1.64 times (x) and 8.5%, respectively.

Thirty-one loans, representing 12.7% of the pool, are secured by cooperative housing properties and are very low-leverage, with minimal term and refinance default risk. The pool is relatively diverse in terms of loan size, as the top 15 loans represent only 51.8% of the pool. Based on the most recent cash flows available, the top 15 loans reported a WA DSCR of 1.72x, compared with the WA DBRS Term DSCR of 1.50x, which is reflective of 16.2% net cash flow growth over the DBRS issuance figures.

As of the December 2017 remittance, there are 15 loans (17.6% of the pool) on the servicer’s watchlist. Of these 15 loans, three loans (12.1% of the pool) were flagged as a result of deferred maintenance, six loans (4.3% of the pool) were flagged because of either occupancy declines and/or near-term tenant rollover, while the remaining six loans (1.3% of the pool; secured by cooperative properties) were flagged for various reasons.

Classes X-A, X-D, X-E and X-F are IO certificates that reference a single rated tranche or multiple rated tranches. The IO ratings mirror 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 in the transaction, as well as the top 15 loans where updated performance information from issuance was available, in the DBRS Viewpoint platform. Registration and access to content 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.

The ratings assigned to Classes E and F materially deviate from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given the sustainability of loan performance trends not demonstrated.

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

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.

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 under Related Documents or by contacting us at info@dbrs.com.

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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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