KBRA Releases Research – Servicer Holdbacks and Impact on CMBS Waterfalls: WFCM 2015-C26 Case Study
KBRA releases research examining a case study for the commercial mortgage-backed securities (CMBS) sector, which focuses on servicer holdbacks and their impact on CMBS waterfalls. A servicer holdback is an amount withheld by the master servicer or special servicer from proceeds that would otherwise be distributed to CMBS certificateholders. Holdbacks are intended to ensure funds are available to pay future servicing costs, anticipated expenses, or unresolved obligations typically associated with a loan during a workout, foreclosure, real estate owned (REO) disposition, or loan payoff. While any unused holdback funds are ultimately returned to the trust, holdbacks may temporarily delay cash distributions and, in certain circumstances, produce outcomes that market participants may not anticipate. This KBRA report examines one such case involving the holdback in the WFCM 2015-C26 transaction near its termination.
Key Takeaways
A $65.6 million servicer holdback resulted in immediate principal write-downs for classes E, F, and G, as well as interest shortfalls for classes D and below—which significantly altered the certificate cash flows while the transaction remained outstanding.
