Bad configuration: cannot ssh

Just remove the UseKeychain yes line from your configuration. The update broke existing setup by removing this option.

Apple's documentation on OpenSSH updates in macOS 10.12.2 states that:

If you are sharing your ssh configuration with systems running older versions of OpenSSH that don't understand the UseKeychain option, you can specify the IgnoreUnknown option to keep your configuration compatible with both new and old versions.

So the trick is that in your ssh config file, add IgnoreUnknown UseKeychain like below:

Host *
  AddKeysToAgent yes
  IgnoreUnknown UseKeychain
  UseKeychain yes