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 since issuance. The subject transaction closed in December 2016 and consisted of 80 loans secured by 135 commercial properties with an original trust balance of $955.0 million. As of the October 2018 remittance, there are 79 of the original 80 loans remaining in the pool, with a trust balance of $928.6 million, which represents a 2.8% collateral reduction since issuance. As of October 2018, 70 loans, representing 94.9% of the pool, reported year-end (YE) 2017 financials and 62 loans, representing 86.8% of the pool, provided partial-year 2018 financials. Based on the most recent YE financials, the pool reported a weighted-average (WA) net cash flow (NCF) growth of 6.1% over the DBRS NCF figures derived at issuance, with a WA debt-service coverage ratio (DSCR) and debt yield of 1.57x and 9.3% (excluding co-operative properties), respectively. These figures compared with the WA DBRS Term DSCR and DBRS Debt Yield of 1.48x and 8.5% (excluding co-operative properties) at issuance, respectively. DBRS has excluded the co-operative properties from these figures as the reported cash flows and calculated DSCRs are generally artificially low, with minimal information provided to the servicers regarding general operations. However, these loans, representing 6.6% of the pool balance, are consisdered to be low-leveraged and have low term and refinance default risk.

As of the October 2018 remittance, four loans, comprising 1.6% of the pool balance, were placed on the servicer’s watchlist for low DSCRs. All four of those loans are secured by co-op properties, which exhibited strong credit characteristics at issuance. Approximately 47.7% of the pool balance (31 loans) currently require interest-only (IO) payments with 12 loans, representing 11.7% of the pool, featuring full IO terms. The largest full IO term loan (9 West 57th Street; Prospectus ID#1), which represents 46.2% of the full IO term loans, is shadow-rated investment-grade. The partial IO loans reported an amortizing DSCR and in-place debt yield of 1.44x and 8.6%, respectively, based on the most recent YE NCF figures.

At issuance, DBRS shadow-rated the 9 West 57th Street loan investment grade, and with this review has confirmed that the performance remains consistent with investment-grade loan characteristics.

Classes Classes X-A, X-B and X-D are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation 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.

As part of this review, DBRS has provided updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- 9 West 57th Street (Prospectus ID#1; 5.4% of the pool balance)
-- Marriott Hilton Head Resort & Spa (Prospectus ID#3; 4.4% of the pool balance)
-- Moreno Valley Plaza (Prospectus ID#6; 3.4% of the pool balance)
-- King’s Quarters at Jack Britt (Prospectus ID#15; 2.1% of the pool balance)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrs.com. The platform includes issuer and servicer data for the entire CMBS universe, as well as deal and loan-level commentary for all DBRS rated transactions.

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

The principal methodology is North American CMBS Surveillance, which can be found on dbrs.com under Methodologies & Criteria. 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.

The rated entity or its related entities did participate 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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