S&P Global Ratings raised its rating on the class A-M commercial mortgage pass-through certificates fromBanc
Our rating actions on the principal - and interest-paying certificates follow our analysis of the transaction, primarily using our criteria for rating U. S. and Canadian CMBS transactions, which included a review of the credit characteristics and performance of the remaining assets in the pool, the transaction's structure, and the liquidity available to the trust.
We raised our rating on class A-M to 'AAA (sf)' to reflect our expectation of the available credit enhancement for this class, which we believe is greater than our most recent estimate of necessary credit enhancement for the rating level. The upgrade also follows our views regarding the collateral's current and future performance and available liquidity support. Based on the feedback provided by the master servicer, some of the performing loans, including the two largest performing loans, were recently paid off following the July 2016 remittance report. We expect the aggregate net proceeds to cover the outstanding balance of class A-M.
The downgrade on class C to 'D (sf)' reflects ongoing interest shortfalls to the class that we expect will continue for the foreseeable future. In addition, the downgrade also reflects credit support erosion that we anticipate will occur upon the eventual resolution of the nine assets ($276.9 million, 67.2%) with the special servicers (discussed below).
According to the July 11, 2016, trustee remittance report, the net current monthly interest shortfalls totaled $330,397 and resulted primarily from:
Appraisal subordinate entitlement reduction amounts totaling $270,297; and
Nonrecoverable Iinterest totaling $69,348.
The current interest shortfalls affected classes subordinate to and including class B.
The affirmations on the principal - and interest-paying certificates reflect our expectation that the available credit enhancement for these classes will be within our estimate of the necessary credit enhancement required for the current ratings. The affirmations also reflect our views regarding the currentand future performance of the transaction's collateral, the transaction structure, and liquidity support available to the classes.
While available credit enhancement levels suggest positive rating movements onclasses A-J and B, our analysis also considered the susceptibility to reduced liquidity support from the nine specially serviced assets, as well as outstanding shortfalls on classes A-J and B.
We affirmed our 'AAA (sf)' rating on the class X-C interest-only (IO) certificates based on our criteria for rating IO securities.
TRANSACTION SUMMARY
As of the July 11, 2016, trustee remittance report, the collateral pool balance was $412.3 million, which is 15.1% of the pool balance at issuance. The pool currently includes 18 loans and four real estate-owned (REO) assets (reflecting cross-collateralized loans), down from 164 loans at issuance. Nineof these assets ($276.9 million, 67.2%) are with the special servicers, and 13loans ($135.4 million, 32.8%;representing cross-collateralized loans) are on the master servicer's watchlist. The master servicer, KeyBank Real Estate Capital, reported financial information for 58.2% of the loans in the pool, ofwhich 4.9% was partial-year 2016 data, 42.4% was year-end 2015 data, and the remainder was year-end 2014 data.
We calculated a 0.95x S&P Global Ratings' weighted average debt service coverage (DSC) and 84.6% S&P Global Ratings' weighted average loan-to-value (LTV) ratio using a 8.04% S&P Global Ratings' weighted average capitalization rate. The DSC, LTV, and capitalization rate calculations exclude the eight of the nine specially serviced assets and two loans ($75.7 million, 18.4%) that paid off after the July 2016 payment period. The top 10 assets have an aggregate outstanding pool trust balance of $370.4 million (89.8%). Using servicer-reported numbers, we calculated a S&P Global Ratings' weighted average DSC and LTV of 0.85x and 87.5%, respectively, for three of the top 10 loans. The remaining seven loans are either specially serviced (discussed below) or paid off.
To date, the transaction has experienced $213.2 million in principal losses, or 7.8% of the original pool trust balance. We expect losses to reach approximately 10.6% of the original pool trust balance in the near term, basedon losses incurred to date and additional losses we expect upon the eventual resolution of eight ($197.5 million, 47.9%) of the nine specially serviced assets.
CREDIT CONSIDERATIONS
As of the July 11, 2016, trustee remittance report, nine assets ($276.9 million, 67.2%) in the pool were with the special servicers, C-III Asset Management LLC (C-III) & LNR Partners LLC (for the BlueLinx Holdings Portfolio(Rollup) loan). Details of the three largest specially serviced assets, which are also the three largest assets in the pool, are as follows:
The Mesa Mall loan ($87.3 million, 21.2%) is the largest loan in the pool and has a total reported exposure of $88.1 million. The loan is secured by a 560,264-sq.-ft. retail mall in Grand Junction, Colo. The loan was transferred to C-III on May 24, 2016, because of imminent maturity default. C-III stated that it it will pursue foreclosure if the borrower does not receive an acceptable alternative resolution offer. The reported DSC and occupancy as of July 2016 are 1.67x and 97.3%, respectively. No appraisal reduction amount (ARA) is currently in effect on this loan. We expect a minimal loss upon this loan's eventual resolution.
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