Wells Fargo Bank priced $914.4 million of commercial mortgage bonds, according to a regulatory filing.
The deal, called Wells Fargo Commercial Mortgage (WFCM) Trust 2015- NXS2, is backed by a portfolio of 64 loans, secured by 77 properties that are underwritten by Natixis Real Estate (55.1%), Wells Fargo Bank (32.1%), and Silverpeak Real Estate Finance (12.8%).
The deal has been rated by Kroll Bond Rating Agency, Moody’s Investors Service, and DBRS.
There are six triple-A rated senior tranches of class A notes that pay swaps plus 38 basis points (bps), 68 bps, 100 bps, 99 bps, 100 bps, and 86 bps, respectively, and benefit from 30% initial credit enhancement. There is also a class A-S tranche that pay 135 basis points over swaps.
At the subordinate level, WFCM deal’s class B notes pay swaps plus 180 bps, followed by the class C and D notes that pay 260 bps and 425 bps over swaps, respectively. The class B, C, and Dnotes benefit from 16.375%, 12.375%, and 8% initial credit enhancement, respectively.
Loans in the pool have principal balances ranging from $1.6 million to $90 million and weighted average (WA) life of 8.5 years.
The largest loan in the pool totals $90 million and is secured by Patriots Park. This loan comprises 9.8% of the entire pool and is fully leased by the U.S. government’s General Services Administration, according to Kroll, which considers it to be high quality tenant. “Although the loan is interest only, and is relatively high leveraged, at 106.6%, its tenancy should result in it having a lower probability of default relative to loans secured by properties with a lower quality tenant base,” the presale report states.
A risk for this transaction is the fact that leverage for the overall pool is higher than the last 20 CMBS conduits rated by Kroll over the past six months. It has a WA in-trust loan-to-value ratio, as measured by Kroll (KLTV), of 107.4%. By comparison, the past 20 CMBS rated by Kroll have KLTV ranging from 97.1% to 106.4%, with an average of 102.6%.
A key strength of the pool is its high exposure to primary markets, at 52.9%. That’s higher than the last 20 CMBS conduits rated by Kroll, which had an average of 47.6%. The diverse economies of primary markets can better withstand fluctuations in the national economy.
By property type, properties securing Wells' latest deal have the highest exposures to office buildings (29.2%), lodging facilities (18.8%), and retail stores (17.3%). Kroll notes that the pool’s lodging concentration is the 9th highest of CMBS conduits rated over the past six months. Lodging is considered to be riskier because nightly room rates vary, making cash flows volatile.
The states with the highest concentrations of properties are California (22.2%), New York (10%), and Virginia (9.8%).
The deal is expected to settle July 14.
