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Rating Action:

Moody's Assigns Ratings to Ten CMBS Classes of Wells Fargo Commercial Mortgage Trust 2016-NXS5

29 Feb 2016

Approximately $662,910,000 of Structured Securities Affected

New York, February 29, 2016 -- Moody's Investors Service has assigned definitive ratings to ten classes of CMBS securities, issued by Wells Fargo Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2016-NXS5.

Cl. A-1, Definitive Rating Assigned Aaa (sf)

Cl. A-2, Definitive Rating Assigned Aaa (sf)

Cl. A-3, Definitive Rating Assigned Aaa (sf)

Cl. A-4, Definitive Rating Assigned Aaa (sf)

Cl. A-5, Definitive Rating Assigned Aaa (sf)

Cl. A-6, Definitive Rating Assigned Aaa (sf)

Cl. A-SB, Definitive Rating Assigned Aaa (sf)

Cl. A-S, Definitive Rating Assigned Aa2 (sf)

Cl. A-6FL, Definitive Rating Assigned Aaa (sf)

Cl. A-6FX, Definitive Rating Assigned Aaa (sf)

Subsequent to our provisional ratings announcement on February 9th 2016, the original principal amount of one class (A-6) was bifurcated and two new classes (A-6FL and A-6FX) were introduced. Class A-6 was reduced from $214,769,000 to $164,769,000 ($50,000,000). Class A-6FL has an initial balance of $50,000,000 and Class A-6FX has an initial balance of $0. Class A-6FL Certificates may be exchanged for Class A-6FX Certificates up to $50,000,000.

The reduction in the original principal amounts of Class A-6 will not have ratings implications on this class. With respect to the Class A-6FL Certificates, Moody's is rating only the receipt of interest up to the Pass-Through Rate applicable to the Class A-6FX Regular Interest, and our rating also does not address the likelihood or the amount of shortfalls to the Class A-6FL Certificates as a result of the "dollar-for-dollar" reduction clause in the Swap Contract. In addition, the ratings do not address any shortfalls or delays in payment that investors in the Class A-6FL Certificates may experience as a result of the conversion of the Pass-Through Rate from a floating to a fixed rate.

All other certificates remain unchanged.

RATINGS RATIONALE

The Certificates are collateralized by 64 fixed-rate loans secured by 116 properties. The ratings are based on the collateral and the structure of the transaction.

Moody's CMBS ratings methodology 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. Under 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 1.49X is higher than the 2007 transactions averages of 1.31x, but lower than the CMBS 2.0 Conduit transaction average of 1.62X. The Moody's Stressed DSCR of 0.92X is equal to the 2007 Conduit transaction average of 0.92X but below the CMBS 2.0 Conduit transaction average of 1.03X.

The pooled Trust loan balance of $875.1 million represents a Moody's LTV ratio of 117.7%, which is both higher than the 2007 and CMBS 2.0 Conduit transaction averages of 110.6% and 105.2%. The Moody's Trust LTV of 117.7 is also higher than the average pools securitized during 2015 of 115.7%.

Moody's also grades properties on a scale of 0 to 5 (best to worst) and considers those grades when assessing the likelihood of debt payment. The factors considered include property age, quality of construction, location, market, and tenancy. The weighted average Moody's Quality Grade for the pool is 2.36, which is higher than the average of recently rated pools in 2016 of 2.30. Moody's rated Conduit pools during 2015 year to date exhibit an average grade of 2.36.

Moody's also considers both loan level diversity and property level diversity when selecting a ratings approach. With respect to loan level diversity, the pool's loan level Herfindahl score of 28.7 is higher than the average of CMBS 2.0 Conduit deals at 27.4 but lower than the 2015 average of 30.0.

With respect to property level diversity, the pool's property level Herfindahl score is 35.8.

This deal has a super-senior Aaa class with 30% credit enhancement. Although the additional enhancement offered to the senior most certificate holders provides additional protection against pool loss, the super-senior structure is credit negative for the certificate that supports the super-senior class. If the support certificate were to take a loss, the loss would have the potential to be quite large on a percentage basis. Thin tranches need more subordination to reduce the probability of default in recognition that their loss-given default is higher. This adjustment helps keep expected loss in balance and consistent across deals. The transaction was structured with additional subordination at class A-S to mitigate the potential increased severity to class A-S.

The principal methodology used in these ratings was "Approach to Rating US and Canadian Conduit/Fusion CMBS" published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

Moody's review used the excel-based CMBS Conduit Model, which it uses for both conduit and fusion transactions. Credit enhancement levels for conduit loans are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade (which reflects the capitalization rate Moody's uses to estimate Moody's value). Moody's fuses the conduit results with the results of its analysis of investment grade structured credit assessed loans and any conduit loan that represents 10% or greater of the current pool balance. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's Parameter Sensitivities: If Moody's value of the collateral used in determining the initial rating were decreased by 5%, 14.3%, and 22.8%, the model-indicated rating for the currently rated senior Aaa (sf) class would be Aaa, Aa1, Aa3, respectively. Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time; rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.

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; (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 rating:

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.

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_SF427161.

The analysis 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.

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 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Harry Blanchard
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Eun Choi
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's Assigns Ratings to Ten CMBS Classes of Wells Fargo Commercial Mortgage Trust 2016-NXS5
No Related Data.
© 2020 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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To the extent permitted by law, MOODY'S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY'S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

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