April 16, 2013 at 17:17 PM EDT
Fitch Issues Presale on FREMF 2013-K26 Multifamily Mtge PT Ctfs and Freddie Mac SPC Series K-026

Fitch Ratings has issued a presale report on FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-026.

Fitch expects to rate the transaction and assign Rating Outlooks as follows:

FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates

--$189,602,000 class A-1 'AAAsf'; Outlook Stable;

--$1,056,551,000 class A-2 'AAAsf'; Outlook Stable;

--$1,246,153,000* class X1 'AAAsf'; Outlook Stable;

--$1,246,153,000* class X2-A 'AAAsf'; Outlook Stable;

--$73,303,000 class B 'Asf'; Outlook Stable;

--$36,652,000 class C 'BBB+sf'; Outlook Stable.

Freddie Mac Structured Pass-Through Certificates, Series K-026

--$189,602,000 class A-1 'AAAsf'; Outlook Stable;

--$1,056,551,000 class A-2 'AAAsf'; Outlook Stable;

--$1,246,153,000* class X1 'AAAsf'; Outlook Stable.

*Notional amount and interest only.

The expected ratings are based on information provided by the issuer as of April 15, 2012. Fitch does not expect to rate the following classes of FREMF 2013-K26: the $219,910,083 interest-only class X2-B, the $219,910,083 interest-only class X3, or the $109,955,083 class D. Fitch does not expect to rate the $219,910,083 interest-only class X3 of the Structured Pass-Through Certificates, Series K-026.

The certificates represent the beneficial interests in a pool of 81 commercial mortgages secured by 81 properties. The Freddie Mac Structured Pass-Through Certificates, Series K-026 (Freddie Mac SPC K-026) represents a pass-through interest in the corresponding class of securities issued by FREMF 2013-K26. Each Freddie Mac SPC K-026 security has the same designation as its underlying FREMF 2013-K26 class. All loans were originated by various seller/servicers according to the guidelines of the Freddie Mac Capital Markets Execution (CME) product. The certificates follow a sequential-pay structure.

Fitch reviewed a comprehensive sample of the transaction's collateral, including site inspections on 71.2% of the properties by balance and cash flow analysis of 75.1% of the pool.

The transaction has a Fitch stressed debt service coverage ratio (DSCR) of 1.15x, a Fitch stressed loan-to value (LTV) of 109.4%, and a Fitch debt yield of 7.22%. Fitch's aggregate net cash flow represents a variance of 5.72% to issuer cash flows.

KEY RATING DRIVERS

High Fitch Leverage: The Fitch stressed LTV ratio is 109.4%, and falls mid-range of the 2012 Fitch-rated 10-year K-series Freddie Mac deals. The DSCR, at 1.15x, is the highest of all of the 2012 Fitch-rated 10-year K-series Freddie Mac deals.

Highly Occupied Properties: Assets in the pool are generally located in stable submarkets that outperform their respective markets. Properties that were 90% or more physically occupied make up 91.8% of the pool and 48.6% is collateralized by properties that were 95% or more physically occupied as of the most current data provided by the issuer.

Large Assets in Major Metropolitan Markets: Four of the top 10 loans, comprising 17.4% of the pool, are secured by properties located in the New York, Los Angeles, and Washington D.C. metropolitan areas.

Property Type Concentration: Of the pool, 100% is backed by multifamily properties. Of the pool, seven loans (10.4%) have been categorized as student housing.

Low Loan Concentration: The LCI score of 225 for this transaction is lower than the average of 261 for the five most recent Fitch-rated, 10-year, K-series Freddie Mac transactions.

Partial Interest: Loans with a partial interest-only period comprise 77.4% of the pool while another 5.0% of the pool consists of full-term interest-only loans. Taking into account the interest-only periods of the loans in the pool, the pool principal balance is expected to amortize 14.4% over the next 10 years.

Strong Origination Practices: All loans were originated by various sellers/originators according to Freddie Mac CME product guidelines and adhere to the originator best practices identified by Fitch. Freddie Mac multifamily loans had an average delinquency of 0.19% as of year-end 2012 compared to 10.12% on Fitch-rated CMBS multifamily loans as of the same period. Based on these program attributes, Fitch applies a programmatic credit to Freddie Mac transactions.

Low Mortgage Coupons: The pool's weighted average coupon is 3.79%, well below historical averages. Fitch accounted for increased refinance risk in a higher interest rate environment by reviewing an interest rate sensitivity analysis, which assumes an interest rate floor of 4.50% for multifamily properties, for the term risk, in conjunction with Fitch's stressed refinance constants, which are 9.23% on a weighted average basis for this transaction.

RATING SENSITIVITIES

Fitch performed several stress scenarios in which the Fitch NCF was stressed. Fitch performed two model-based break-even analyses to determine the level of cash flow and value deterioration the pool could withstand prior to $1 of loss being experienced by the 'BBB+sf' and 'AAAsf' rated classes. Fitch found that the FREMF 2012-K26 pool could withstand a 44.19% decline in value (based on appraised values at issuance) and an approximately 21.38% decrease to the most recent actual cash flow prior to experiencing $1 of loss to the 'BBB+sf' rated class. Additionally, Fitch found that the pool could withstand a 45.79% decline in value and an approximately 21.38% decrease in the most recent actual cash flow prior to experiencing $1 of loss to any 'AAAsf' rated class.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report.

The Master Servicer and Special Servicer will be Wells Fargo Bank, National Association and KeyCorp Real Estate Capital Markets, Inc., Inc., rated 'CMS2' and 'CSS2+', respectively, by Fitch.

The presale report is available at 'www.fitchratings.com.'

'Criteria for Analyzing Multiborrower U.S. Commercial Mortgage Transactions', Aug. 8, 2012;

'U.S. Commercial Mortgage Servicer Rating Criteria', Feb. 18, 2011;

'U.S. Fixed-Rate Multiborrower CMBS Surveillance and ReREMIC Criteria', Dec. 18, 2012;

'Global Structured Finance Rating Criteria', Aug. 4, 2011

'Criteria for Special-Purpose Vehicles in Structured Finance Transactions', June 13, 2011.

Applicable Criteria and Related Research FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-026 (US CMBS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706175

Criteria for Special-Purpose Vehicles in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=680591

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

U.S. Commercial Mortgage Servicer Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=584005

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696969

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=788731

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Contacts:

Fitch Ratings
Primary Analyst
Brian Vorderbrueggen, +1-212-908-9102
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Clement Okeke, +1-312-606-2323
Analyst
or
Committee Chairperson
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Managing Director
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sandro.scenga@fitchratings.com
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