Moody’s Investors Service has assigned a definitive Baa3 (sf) rating to about $182 million in securities in a commercial real estate liquidating vehicle that introduces a new feature.
This particular deal—SMA Portfolio, Series 2012-LV1—includes equity leakage, which makes it different from other deals of this type, which were a distinct part of the securitized commercial market this year.
Equity leakage involves a 70%/30% split of excess cash flow with the sponsor’s equity if certain performance hurdles are satisfied, with the aim of prolonging the weighted average maturity of the bond as well as providing a return of some equity to the sponsor prior to bondholders getting paid off.
Moody’s based its rating on three main performance drivers: the net recovery rate after resolution, the timing of the resolution, and the potential for allocation of excess cash flow between the bondholders and sponsors if performance hurdles are satisfied.
Collateralizing the note in this transaction are 12 mortgages secured by 13 properties, and one real estate owned condominium property. Bank of America’s lending program originated all of the collateral loans.
The total unpaid principal balance of the loans and properties represented in the pool is about $351.7 million. The sponsors purchased the assets for approximately $262 million, or 74.5% of the UPB.
Performing loans constitute 70.6% of the total UPB, NPLs make up 20.9% of the collateral pool and REO properties represent 8.6% of the pool. Origination dates for the loans in the pool range from 2003 to 2011.