Wells Fargo Bank is marketing $914.4 million of commercial mortgage bonds, according to a presale report released by Kroll Bond Rating Agency.  

The deal, called Wells Fargo Commercial Mortgage (WFCM) Trust 2015- NXS2, is backed by a pool 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%).

Kroll has assigned its ‘AAA’ rating to the seven senior tranches of class A notes that benefit from initial credit enhancement of 30%. The class B, C, D, E, and F notes benefit from 16.375%, 12.375%, 8%, 5.25%, and 3.25% 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.

Leverage for the overall pool is higher than the last 20 CMBS conduits rated by Kroll over the past six months, which the ratings agency cites as a key risk of the deal. The pool has a WA in-trust loan-to-value ratio, as measured by Kroll, 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.

This exposure compares favorably with another deal that Wells brought to market this month, the $1.18 billion WFCM 2015-C29; more than half of the properties in that deal are in secondary or tertiary markets. http://www.structuredfinancenews.com/news/commercial_mbs/wells-fargo-plans-118b-cmbs-256738-1.html  

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. High exposure to lodging properties is considered to be riskier because these assets can have more volatile cash flows due to dependence on nightly room rates.   The states with the highest concentrations of properties are California (22.2%), New York (10%), and Virginia (9.8%).

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 (GSA), a High Quality Credit Worthy Tenant (HQCWT). Kroll said, “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 top five loans represent 32.41% of the initial pool balance, which is considered a risk because losses would be high if even one of these loans defaulted. 

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