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Rating Action:

Moody's Assigns Definitive Ratings to Seven CMBS REMIC Classes of FREMF 2018-K730 and Five SPC Classes of Freddie Mac SPCs, Series K-730

14 Mar 2018

Approximately $1.360 billion of Structured Securities Affected

New York, March 14, 2018 -- Moody's Investors Service has assigned definitive ratings to seven classes of CMBS securities (the "REMIC Classes"), issued by FREMF 2018-K730 Mortgage Trust, Multifamily Mortgage Pass-Through Certificates, Series 2018-K730 (the "REMIC Trust"):

Cl. A-1, Assigned Aaa (sf)

Cl. A-2, Assigned Aaa (sf)

Cl. A-M, Assigned A1 (sf)

Cl. B, Assigned Baa1 (sf)

Cl. C, Assigned Baa3 (sf)

Cl. X1*, Assigned Aaa (sf)

Cl. XAM*, Assigned A1 (sf)

Moody's Investors Service has also assigned definitive ratings, consisting of Guaranteed and Underlying Ratings, to five classes of Structured Pass-Through Certificates (the "SPC Classes"), issued by Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-730(the "SPC Trust"):

Cl. A-1, Definitive Guaranteed Rating Assigned Aaa (sf); Underlying Rating: Definitive Rating Assigned Aaa (sf)

Cl. A-2, Definitive Guaranteed Rating Assigned Aaa (sf); Underlying Rating: Definitive Rating Assigned Aaa (sf)

Cl. A-M, Definitive Guaranteed Rating Assigned Aaa (sf); Underlying Rating: Definitive Rating Assigned A1 (sf)

Cl. X1*, Definitive Guaranteed Rating Assigned Aaa (sf); Underlying Rating: Definitive Rating Assigned Aaa (sf)

Cl. XAM*, Definitive Guaranteed Rating Assigned A1 (sf); Underlying Rating: Definitive Rating Assigned A1 (sf)

* Reflects interest-only classes.

Each of the SPC Classes represents a pass-through interest in an associated REMIC Class issued by the REMIC Trust. Class A-1 SPC represents a pass-through interest in REMIC Class A-1, Class A-2 SPC represents a pass-through interest in REMIC Class A-2, Class A-M SPC represents a pass-through interest in REMIC Class A-M, Class X1 SPC represents a pass-through interest in REMIC Class X1, and Class XAM SPC represents a pass-through interest in REMIC Class XAM.

As discussed below, the Federal Home Loan Mortgage Corp. ("Freddie Mac") provides guarantees for the benefit of the SPC Classes. The assigned Guaranteed Ratings consider the benefit, if any, of the guarantees that Freddie Mac provides for the benefit of the SPC Classes, while the Underlying Ratings represent Moody's assessment of the SPC Classes' credit quality absent these guarantees.

The two stated trusts are interrelated given that the aggregate offered certificate amount of $1,470,539,202, comprised of $1,264,663,000 in offered SPC Classes and $205,876,202 in offered REMIC Classes, equal the underlying mortgage loan pool balance of $1,470,539,202.

RATINGS RATIONALE

The seven rated REMIC Classes are collateralized by a pool of 52 fixed rate loans secured by 52 multifamily properties. Of these seven classes, two REMIC Classes (Classes B and C) will be offered to investors, while the remaining five classes (Classes A-1, A-2, A-M, X1, and XAM, or the "Underlying Guaranteed Classes") will be acquired and guaranteed by Freddie Mac and subsequently deposited into the SPC Trust to back the SPC Classes that will be offered to investors.

In rating the seven REMIC Classes, Moody's applied its CMBS ratings methodology, which combines both commercial real estate and structured finance analysis. Based on commercial real estate analysis, Moody's determines the credit quality of each mortgage loan and calculates an expected loss on a loan specific basis. In structured finance, the credit enhancement for each certificate typically depends on the expected frequency, severity, and timing of future losses. Moody's also considers a range of qualitative issues as well as the transaction's structural and legal aspects.

The credit risk of loans is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by each loan's DSCR, and 2) Moody's assessment of the severity of loss upon a default, which is largely driven by each loan's LTV ratio.

The Moody's Actual DSCR of 1.52x is lower than the 2017 Conduit/Fusion transaction average of 1.84x. The Moody's Stressed DSCR is 0.78x which is also below the 2017 Conduit/Fusion transaction average of 1.00x.

Moody's Pooled Trust LTV ratio is 123.8%, which is above the 2017 Conduit/Fusion transaction average of 112.4%. In terms of leverage dispersion, loans representing approximately 2.4% of the pool balance has a MLTV ratio between 100% and 110%, with 33.9% of the pool between 110% and 120%, 42.3% between 120% and 130%, and 20.9% between 130% and 138.8%.

The pool contains a concentration of loans with interest-only debt service components. Nineteen loans (41.5% of the pool balance) are structured with interest-only payment schedules for the entire term of the loan, twenty-six loans (50.6% of pool balance) are structured with an initial interest-only period followed by fixed amortization payments and seven loans (7.9% of pool balance) are structured with amortization during the entire loan term prior to a balloon payment obligation.

Notable strengths of the REMIC Trust transaction include: the lender's performance history; strong occupancy rate profile; market composition; and pool diversity characteristics.

Notable credit challenges of the REMIC Trust transaction include: high average loan LTV and dispersion; amortization profile; and missing legal protections.

In rating the five SPC Classes, Moody's considered the repack nature of the SPC Trust transaction structure, the credit quality of the underlying collateral, and, other than with respect to the Underlying Ratings, the guarantees that Freddie Mac provides for the benefit of the SPC Classes.

Freddie Mac will acquire and guarantee (as described in the following paragraph) the Underlying Guaranteed Classes (A-1, A-2, A-M, X1, and XAM, issued by the REMIC Trust) and will subsequently deposit these into the SPC Trust to back the offered SPC Classes. Furthermore, Freddie Mac will also guarantee the SPC Classes themselves. With respect to Class A-M SPC, Moody's assigned Guaranteed Rating is based primarily on a guarantee provided by Freddie Mac on the class itself and on the Underlying Guaranteed Class A-M. Any guarantee payments made by Freddie Mac on the Underlying Guaranteed Classes will be passed through to the holders of the corresponding SPC Classes. Moody's rates Freddie Mac's senior unsecured debt Aaa.

Under the transaction documents, Freddie Mac guarantees payments on the Underlying Guaranteed Classes and the SPC Classes, including (a) timely payment of interest, (b) payment of related principal on the distribution date following the maturity date of each balloon mortgage loan to the extent such principal would have been distributed to Classes A-1, A-2 and A-M, (c) realized losses and other fees/expenses allocated to Classes A-1, A-2 and A-M, and (d) ultimate payment of principal by the final distribution date for Classes A-1, A-2 and A-M.

Moody's believes that the Freddie Mac guarantees that enhance SPC Classes A-1, A-2, and A-M support complete credit substitution given the strong incentives for Freddie Mac to fulfill its guarantee obligations under this transaction. The failure to fulfill its guarantee obligations under this transaction would have negative credit implications for Freddie Mac. As a result, the assigned Guaranteed Ratings on the SPC Classes A-1, A-2 and A-M are the higher of the support provider's financial strength rating (Aaa, senior unsecured) and the Underlying Rating of the SPC Classes, without considering credit for Freddie Mac's guarantees.

Moody's notes that the Freddie Mac guarantees on the interest-only SPC Classes X1 and XAM do not provide additional enhancement. Freddie Mac's guarantee does not cover any loss of yield on these interest-only classes following a reduction of notional amount due to a reduction of the principal balance of the REMIC Underlying Classes. Therefore, SPC Classes X1's and XAM's assigned Guaranteed and Underlying Ratings reflect the classes' underlying credit risk without credit for the guarantees.

Given the repack nature of the structure, SPC note holders are exposed to the credit risk of the underlying SPC assets, namely, the rated REMIC Underlying Guaranteed Classes. The SPC Trust will contain separate pass-through pools, each designated as Pass-Through Pool A-1, A-2, A-M, X1, and XAM, and each will hold a corresponding rated REMIC Underlying Guaranteed Class, including REMIC Classes A-1, A-2, A-M, X1, and XAM, respectively. All cash flows received by each of the Underlying Guaranteed Classes will be applied to make pass-through payments to the corresponding SPC. Repayment of the rated SPC Classes depends primarily on the performance of the rated REMIC Underlying Guaranteed Classes, as well as any payments made by Freddie Mac pursuant to its guarantees.

Methodologies Underlying the Rating Action:

The principal methodology used in rating REMIC Class A-1, REMIC Class A-2, REMIC Class A-M, REMIC Class B, and REMIC Class C was "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in July 2017. The principal methodologies used in rating REMIC Class X1 and REMIC Class XAM were "Approach to Rating US and Canadian Conduit/ Fusion CMBS" published in July 2017 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The principal methodologies used in rating SPC Class A-1 Guaranteed Rating, SPC Class A-2 Guaranteed Rating, and SPC Class A-M Guaranteed Rating were "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts" published in May 2017 and "Moody's Approach to Rating Repackaged Securities" published in June 2015. The principal methodologies used in rating SPC Class X1 Guaranteed Rating and SPC Class XAM Guaranteed Rating were "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts" published in May 2017, "Moody's Approach to Rating Repackaged Securities" published in June 2015, and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The principal methodology used in rating SPC Class A-1 Underlying Rating, SPC Class A-2 Underlying Rating, and SPC Class A-M Underlying Rating was "Moody's Approach to Rating Repackaged Securities" published in June 2015. The principal methodologies used in rating SPC Class X1 Underlying Rating and SPC Class XAM Underlying Rating were "Moody's Approach to Rating Repackaged Securities" published in June 2015 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

These ratings: (a) are based solely on information in the public domain and/or information communicated to Moody's by the issuer at the date it was prepared and such information has not been independently verified by Moody's and (b) must be construed solely as a statement of opinion and not a statement of fact or an offer, invitation, inducement or recommendation to purchase, sell or hold any securities or otherwise act in relation to the issuer or any other entity or in connection with any other matter. Moody's does not guarantee or make any representation or warranty as to the correctness of any information, rating or communication relating to the issuer. Moody's shall not be liable in contract, tort, statutory duty or otherwise to the issuer or any other third party for any loss, injury or cost caused to the issuer or any other third party, in whole or in part, including by any negligence (but excluding fraud, dishonesty and/or willful misconduct or any other type of liability that by law cannot be excluded) on the part of, or any contingency beyond the control of Moody's, or any of its employees or agents, including any losses arising from or in connection with the procurement, compilation, analysis, interpretation, communication, dissemination, or delivery of any information or rating relating to the issuer.

Factors that would lead to an upgrade or downgrade of the ratings:

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had previously anticipated. Factors that may cause an upgrade of the ratings include significant loan paydowns or amortization, an increase in the pool's share of defeasance or overall improved pool performance. Factors that may cause a downgrade of the ratings include a decline in the overall performance of the pool, loan concentration, increased expected losses from specially serviced and troubled loans or interest shortfalls.

With respect to certain SPC Classes, and in particular Class A-M, key to our assumption in reaching the Guaranteed Ratings are the Freddie Mac guarantees. With the exception of the interest-only SPC Classes X1 and XAM, the assigned Guaranteed Ratings of the SPC Classes may be sensitive to any change in Freddie Mac's rating, since our assigned Guaranteed Ratings on the SPC Classes are the higher of Freddie Mac's financial strength rating as the guarantee provider and the SPC Classes' Underlying Rating.

The mortgage loan documents and the pooling and servicing agreement (PSA) include provisions that may prompt our monitoring of the transaction for possible increased ratings volatility compared to other Moody's-rated CMBS transactions. Under the PSA, the servicer must give each rating agency notice, specifying that the master servicer has approved a mortgage borrower's incurrence of additional debt or a property transfer. This is in contrast to other CMBS transactions, in which the mortgage loan documents and the PSA include "Rating Agency Confirmation" provisions through which the transaction parties must confirm in advance that a contemplated action, in and of itself and as of that point in time, will not result in the downgrade or withdrawal of the existing rating. Given that this transaction provides for notification only, we will monitor whether such notification or notifications lead to any incremental ratings volatility.

Moody's ratings address only the credit risks associated with the transaction. Other non-credit risks have not been addressed and may have a significant effect on yield to investors.

The ratings do not represent any assessment of (i) the likelihood or frequency of prepayment on the mortgage loans, (ii) the allocation of net aggregate prepayment interest shortfalls, (iii) whether or to what extent prepayment premiums might be received, or (iv) in the case of any class of interest-only certificates, the likelihood that the holders thereof might not fully recover their investment in the event of a rapid rate of prepayment of the mortgage loans.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1115469 for FREMF 2018-K730 Mortgage Trust and on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1115464 for Freddie Mac Structured Pass-Through Certificates (SPCs), Series K-730.

The analysis for REMIC Trust includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

In rating SPC Trust, Moody's did not use any models, or loss or cash flow analysis, in its analysis.

For REMIC Trust, Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For SPC Trust, Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gregory Ingaglio
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karen Ramallo
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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