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FEDERAL HOME LOAN MORTGAGE CORPORATION

(FMCC)
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Fitch to Rate FREMF 2021-K135 Multifamily Mtg P-T Ctfs and Freddie Mac SPC Ser K-135; Presale Issued

11/30/2021 | 04:48am EST

Fitch Ratings has assigned expected ratings and issued a presale report on FREMF 2021-K135 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series K-135.

RATING ACTIONS

Entity / Debt

Rating

Freddie Mac 2021-K135

A-1

LT

AAA(EXP)sf

Expected Rating

A-1

ULT

AAA(EXP)sf

Expected Rating

A-2

LT

AAA(EXP)sf

Expected Rating

A-2

ULT

AAA(EXP)sf

Expected Rating

A-M

LT

NR(EXP)sf

Expected Rating

A-M

ULT

NR(EXP)sf

Expected Rating

X1

LT

AAA(EXP)sf

Expected Rating

X1

ULT

AAA(EXP)sf

Expected Rating

X3

LT

NR(EXP)sf

Expected Rating

Page

of 3

VIEW ADDITIONAL RATING DETAILS

FREMF 2021-K135 Multifamily Mortgage Pass-Through Certificates (FREMF 2021-K135):

$117,610,000b class A-1 'AAAsf'; Outlook Stable;

$893,718,000b class A-2 'AAAsf'; Outlook Stable;

$1,011,328,000ab class X1 'AAAsf'; Outlook Stable;

$1,011,328,000a class X2-A 'AAAsf'; Outlook Stable.

In addition, Fitch has issued expected Unenhanced Ratings, which reflect the underlying creditworthiness absent of the Freddie Mac guarantee as well as Rating Outlooks to FREMF 2021-K135 of 'AAAsf'/Outlook Stable for classes A-1, A-2, and X1. Fitch has not issued Unenhanced Ratings to class X2-A as that class is not guaranteed by Freddie Mac and the expected 'AAAsf'/Outlook Stable long-term rating already reflects the underlying creditworthiness absent the guarantee.

Freddie Mac Structured Pass-Through Certificates, Series K-135 (Freddie Mac SPC K-135):

$117,610,000b class A-1 'AAAsf'; Outlook Stable;

$893,718,000b class A-2 'AAAsf'; Outlook Stable;

$1,011,328,000ab class X1 'AAAsf'; Outlook Stable.

Fitch has also issued expected Unenhanced Ratings, which reflect the underlying creditworthiness absent of the Freddie Mac guarantee as well as Outlooks to Freddie Mac SPC K-135 of 'AAAsf'/Outlook Stable for classes A-1, A-2, and X1.

(a)	Notional amount and interest only (IO).
(b)	Guaranteed by Freddie Mac.

The FREMF 2021-K135 trust consists of both guaranteed and unguaranteed certificates. The underlying guaranteed certificates consist of the classes A-1, A-2, A-M, X1, XAM and X3. These certificates will be purchased by Freddie Mac to be deposited into the Freddie Mac SPC K-135 trust to back the Freddie Mac SPC K-135 certificates. The expected ratings of classes A-1, A-2, and X1 consider the Freddie Mac guarantee and the underlying creditworthiness of the collateral. Freddie Mac is currently rated 'AAA'/'F1+'/Outlook Negative.

Fitch does not expect to rate the following classes of FREMF 2021-K135: $253,227,997 IO-class X2-B; $190,000,000 class A-M; $190,000,000 IO-class XAM; $63,227,997 IO-class X3 and $63,227,997 class D. Additionally, Fitch does not expect to rate the following classes of Freddie Mac SPC K-135: $190,000,000 class A-M; $190,000,000 IO-class XAM; $63,227,997 IO-class X3. These expected ratings and Unenhanced Ratings are based on the information provided by the issuer as of Nov. 29, 2021.

Transaction Summary

The certificates represent the beneficial ownership interest in the trust. The trust's primary assets are 50 loans secured by 50 commercial properties with an aggregate principal balance of approximately $1.26 billion as of the cutoff date. Freddie Mac SPC K-135 represents a pass-through interest in the corresponding class of securities issued by FREMF 2021-K135. Each Freddie Mac SPC K-135 security has the same designation as its underlying FREMF 2021-K135 class. All loans were originated specifically for Freddie Mac by approved seller servicers. The certificates follow a sequential-pay structure.

Fitch reviewed a comprehensive sample of the transaction's collateral, including cash flow analysis of 80.4% of the pool and asset summary reviews of 100% of the pool.

KEY RATING DRIVERS

Fitch Leverage Higher Compared to Recent Transactions: The pool's Fitch debt service coverage ratio (DSCR) and loan to value ratio (LTV) are 0.98x and 139.7%, respectively. The pool's DSCR is lower than the averages for YTD 2021 and 2020 Fitch-rated 10-year Freddie Mac transactions of 1.03x and 1.02x, respectively. The pool's LTV is higher than the average LTV for YTD 2021 and 2020 Fitch-rated 10-year Freddie Mac transactions of 135.0% and 129.4%, respectively.

Pool Concentration: The top 10 loans represent 50.5% of the pool, which is higher than the YTD 2021 and 2020 Fitch-rated averages for 10-year Freddie Mac transactions of 46.1% and 44.3%, respectively. The pool received a Loan Concentration Index (LCI) score of 364, which is also higher than the YTD 2021 and 2020 Fitch-rated averages for 10-year Freddie Mac transactions of 336 and 316, respectively.

Property Type Concentration. The pool is secured by 94.9% traditional multifamily properties, 4.0% healthcare properties and 1.1% manufactured housing communities (MHCs). Healthcare properties have a higher probability of default in Fitch's multiborrower model. Five loans (9.2%) have student tenant concentrations above 5.0%. Student housing properties are the biggest contributor to overall CMBS multifamily defaults.

The pool exhibits more or less similar concentration than the averages for Fitch-rated YTD 2021, 10-year, Freddie Mac transactions of 93.6% for multifamily, 4.1% for MHC and 2.2% for healthcare properties for Fitch-rated transactions.

Freddie Mac Guarantee: The expected ratings of classes A-1, A-2 and X1 factor added support via a guarantee from Freddie Mac. Freddie Mac is currently rated 'AAA'/'F1+'/Outlook Negative by Fitch. The certificates will, at all times, be rated at the higher of Freddie Mac's rating or the underlying rating without the guarantee.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Declining cash flow decreases property value and capacity to meet its debt service obligations. The list below indicates the model-implied rating sensitivity to changes in one variable, Fitch NCF:

Original Rating: 'AAAsf';

10% NCF decline: 'AAsf';

20% NCF decline: 'Asf';

30% NCF decline: 'BBBsf'.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch did not consider the implementation of positive stresses for this transaction as the rated classes are at the highest rating level and cannot be upgraded further. The presale report includes a detailed explanation of additional stresses and sensitivities on page 10.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Fitch was provided with Form ABS Due Diligence-15E ('Form 15E') as prepared by PricewaterhouseCoopers LLP. The third-party due diligence described in Form 15E focused on a comparison and re-computation of certain characteristics with respect to each of the mortgage loans. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

Additional information is available on www.fitchratings.com

PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.

APPLICABLE CRITERIA

Criteria for Rating North American Commercial Mortgage Servicers (pub. 22 Jan 2020)

Criteria for Rating Loan Servicers (pub. 08 Feb 2020)

Single- and Multi-Name Credit-Linked Notes Rating Criteria (pub. 12 Feb 2021) (including rating assumption sensitivity)

North America and Asia-Pacific Multiborrower CMBS Surveillance Criteria (pub. 08 Apr 2021) (including rating assumption sensitivity)

U.S. and Canadian Multiborrower CMBS Rating Criteria (pub. 08 Apr 2021) (including rating assumption sensitivity)

Global Structured Finance Rating Criteria (pub. 26 Oct 2021) (including rating assumption sensitivity)

APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

CMBS TreppPort, v1.0.11 (1)

U.S. and Canadian CMBS MultiBorrower Model, v1.8.1 (1)

ADDITIONAL DISCLOSURES

Dodd-Frank Rating Information Disclosure Form

ABS Due Diligence Form 15E 1

Solicitation Status

Endorsement Policy

ENDORSEMENT STATUS

Freddie Mac Structured Pass-Through Certificates 2021-K135 	EU,UK Endorsed
FREMF 2021-K135 	EU,UK Endorsed

(C) 2021 Electronic News Publishing, source ENP Newswire

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