DBRS Morningstar Confirms All Classes of Wells Fargo Commercial Mortgage Trust 2016-NXS6, Removes Three Ratings from UR-Neg.

DBRS Limited (DBRS Morningstar) confirmed all classes of Commercial Mortgage Pass-Through Certificates, Series 2016-NXS6 issued by Wells Fargo Commercial Mortgage Trust 2016-NXS6 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-SB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at AA (high) (sf)
-- Class X-B at AA (low) (sf)
-- Class C at A (high) (sf)
-- Class X-D at BBB (high) (sf)
-- Class D at BBB (sf)
-- Class X-E at BBB (low) (sf)
-- Class E at BB (high) (sf)
-- Class F at BB (low) (sf)
-- Class X-FG at B (high) (sf)
-- Class G at B (sf)

DBRS Morningstar removed Classes F, G, and X-FG from Under Review with Negative Implications, where it placed them on August 6, 2020. All trends are Stable, with the exception of Classes F, G and X-FG, which have Negative trends. In addition, DBRS Morningstar placed the Interest in Arrears designation on Class G. The Negative trends reflect the elevated risk profile of two loans in the top 10, which have been adversely affected by the ongoing Coronavirus Disease (COVID-19) pandemic, as well as the concentration of loans in special servicing, which represent 15.2% of the pool. The pool has a high concentration of loans backed by retail properties in the transaction, representing 26.7% of the pool balance. As retail properties have been particularly hard hit amid the coronavirus pandemic, this concentration is noteworthy.

As of the November 2020 remittance, all 50 loans remain in the pool, with scheduled amortization resulting in 3.0% of collateral reduction since issuance. Three loans, representing 1.9% of the current pool balance, are fully defeased. There are six loans in special servicing, including the sixth-largest loan in the pool, Cassa Times Square Mixed-Use (Prospectus ID #6, 4.7% of the pool balance), which is more than 121 days delinquent and is secured by a mixed-use property in New York City. Before the pandemic, the collateral achieved occupancy rates above 90.0%, with a YE2019 debt service coverage ratio (DSCR) of 1.98 times (x), according to the servicer. The loan was transferred to special servicing in May 2020, with the servicer reporting it’s pursuing foreclosure. The June 2020 appraisal obtained by the special servicer estimated an as-is value of $32.1 million, a 53.4% decline compared with the issuance appraisal value of $68.9 million and just below the outstanding trust balance of $34.2 million. Given the sharp value decline and the challenges facing the property amid the pandemic, DBRS Morningstar applied an elevated probability of default in the analysis for this loan to significantly increase the expected loss.

The second-largest loan in special servicing is Sixty Soho (Prospectus ID#10, 3.6% of the pool), which is secured by a 97-key full-service hotel in New York City. The loan first went delinquent in May 2020 and has hovered between 30 days and 90+ days delinquent since. The loan was transferred to special servicing in October 2020. Prior to the loan’s transfer to special servicing, the servicer approved a coronavirus relief request with a modification that allowed for reserve funds to be applied to the outstanding debt service payments due for April, May, and June 2020. However, as of the November 2020 remittance, the loan is listed as 90 to 120 days delinquent, and the servicer is still determining a workout strategy. An updated appraisal has not been finalized yet, but given the difficulties for the property and the hospitality sector overall, the as-is value has likely declined significantly from issuance. Given these factors, DBRS Morningstar analyzed this loan with a higher probability of default to significantly increase the expected loss. According to the November 2020 remittance, 14 loans are on the servicer’s watchlist, representing 24.2% of the current pool balance. The servicer is monitoring these loans for various reasons, including a low DSCR or occupancy figure, tenant rollover risk, and/or pandemic-related forbearance requests.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Classes X-A, X-B, X-D, X-E, and X-FG 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 are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

DBRS Morningstar provides updated analysis and in-depth commentary in the DBRS Viewpoint platform for the following loans in the transaction:

-- Prospectus ID#6 – Cassa Times Square Mixed-Use (4.7% of the pool)
-- Prospectus ID#10 – Sixty Soho (3.6% of the pool)

For complimentary access to this content, please register for the DBRS Viewpoint platform at www.viewpoint.dbrsmorningstar.com. The platform includes issuer and servicer data for most outstanding CMBS transactions (including non-DBRS Morningstar rated), as well as loan-level and transaction-level commentary for most DBRS Morningstar-rated and -monitored transactions.

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

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.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 Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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