Fitch Ratings has affirmed 17 classes of
The Rating Outlook on class E and X-E have been revised to Stable from Negative.
RATING ACTIONS
Entity / Debt
Rating
Prior
WFCM 2017-C42
A-2 95001GAB9
LT
AAAsf
Affirmed
AAAsf
A-3 95001GAD5
LT
AAAsf
Affirmed
AAAsf
A-4 95001GAE3
LT
AAAsf
Affirmed
AAAsf
A-BP 95001GAF0
LT
AAAsf
Affirmed
AAAsf
A-S 95001GAK9
LT
AAAsf
Affirmed
AAAsf
A-SB 95001GAC7
LT
AAAsf
Affirmed
AAAsf
B 95001GAL7
LT
AA-sf
Affirmed
AA-sf
C 95001GAM5
LT
A-sf
Affirmed
A-sf
D 95001GAU7
LT
BBB-sf
Affirmed
BBB-sf
Page
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VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Improved Loss Expectations: Overall pool performance and loss expectations have improved since Fitch's last rating action. The Outlook revisions to Stable from Negative reflect performance stabilization for the majority of properties affected by the pandemic.
Fitch's current ratings incorporate a base case loss of 4.4%. Fitch has identified seven Fitch Loans of Concern (FLOCs; 16.3% of pool), including one loan in special servicing (1.0%).
Largest Contributors to Loss: The largest contributor to loss and largest increase in loss expecatations since Fitch's prior rating action is the
The YE 2021 NOI reported 24% below the issuers NOI primarily due to increased expenses, driven by higher real estate taxes and utility costs, in addition to the increased vacancy. The servicer reported NOI DSCR reported at 1.59x as of YE 2021, compared with 2.10x at YE 2020 and 2.01x at issuance.
Fitch's base case loss of 6.2% reflects an 8.5% cap rate and a 5% stress to the YE 2021 NOI. Fitch's analysis gives credit for the property location and lower leverage of
The next largest contributor to loss is the
Fitch's base case loss of 11.4% reflects a 10.25% cap rate and a 40% stress to the YE 2021 NOI to reflect the largest tenant's departure.
The next largest contributor to loss is the
The property has had relatively stable performance, with minimal impact from the pandemic. The YE 2021 NOI is relatively flat to YE 2020; however, it remains 12% below the issuer's underwritten NOI. This IO loan has remained current, with NOI DSCR reporting at 2.40x for YTD
Occupancy has remained relatively flat since issuance, most recently reporting at 97% as of
Fitch's analysis includes a 12% cap rate and 5% stress to the YE 2021 NOI, resulting in an 11% base case loss.
Minimal Change to Credit Enhancement (CE): As of the
Eleven loans (46%) are full-term IO, and five loans (22.9%) remain in their partial IO periods.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downgrades to classes A-2 through B are not likely due to their increasing CE, overall stable pool performance and expected continued paydown; however, downgrades to these classes may occur should interest shortfalls affect these classes;
Downgrades to classes C and D would occur if loss expectations increase significantly and/or if CE is eroded due to realized losses that exceed expectations on one or more larger FLOCs;
Downgrades to class E would occur if the performance of the FLOCs deteriorate further or fail to stabilize.
Further downgrades to the distressed class F would occur if losses are realized or become more certain.
Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upgrades to the 'AA-sf' and 'A-sf' category would likely occur with significant improvement in CE and/or defeasance; however, adverse selection and increased concentrations or the underperformance of particular loan(s) could cause this trend to reverse. Classes would not be upgraded above 'Asf' if there is likelihood for interest shortfalls.
The 'BBB-sf', 'B-sf' and 'CCCsf' rated classes are unlikely to be upgraded absent significant performance improvement of the FLOCs and sufficient credit enhancement.
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
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
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.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
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