American Homes 4 Rent Delivers Round 3 of SFR Bonds
American Homes 4 Rent is marketing its third securitization; it is backed by a $530 million loan secured by 4,521 single-family home rental properties.
Goldman Sachs, JPMorgan Securities and Wells Fargo Securities are the lead managers on the deal. Kroll Bond Ratings Agency and Morningstar have been hired to rate it.
The underlying loan is fixed-rate and amortizes on a monthly basis over a term of 10 years, the longest loan tenure to date that has backed a single-family rental securitization.
Although the amortization feature is similar to three previous floating-rate transactions, which include AH4R 2014-SFR1, Colony American Homes 2014-1 and Invitation Homes 2013-SFR1, those loans have fully extended terms of only five years. The other seven prior securitizations are collateralized by interest-only loans with five-year fully extended terms.
Loans with longer terms can be more susceptible to term default than loans of comparable credit quality with shorter terms because they have more payments over which a default can occur. The loans have both a higher term probability of default and a higher lifetime probability of default. "Furthermore, as the asset class is relatively new to securitization, there is less visibility regarding how the loan will perform over a longer 10-year time horizon," Kroll stated in its presale report.
However, the loan backing AH4R-SFR3 pays both interest and principal on a monthly basis. This natural deleveraging over the loan term "results in a lower risk of maturity default compared to an interest-only loan," stated Kroll. "In the event of default later in its term, an amortizing loan will also experience a lower loss given default relative to an interest-only loan owing to its lower remaining principal balance."
The AH4R 2014-SFR3 pool features properties that are located in 10 states, with the three largest state exposures representing 58.8% of the aggregate broker price opinion value of the portfolio: Texas (23.8%), North Carolina (21.3%) and Indiana (13.7%). The aggregate BPO value of the underlying homes was $799.4 million, yielding a loan-to-value ratio of 66.3%.
Some of the homes (112 properties) are rented on month-to-month leases and 57 properties had assumed tenants in place at time of acquisition, also known as carry-over tenants. This includes two properties that have assumed tenants on month-to-month leases.
The capital trust will offer $303 million of AAA/AAA rated securities with credit enhancement at 42.7%, $49.9 million of AA+/AA+ rated securities with credit enhancement at 33.3%, $53.9 million of AA-/A+ rated securities with credit enhancement at 23.1%, $35.9 million of A/BBB+ rated securities with credit enhancement at 16.3% and $86.3 million of BBB-/BBB rated notes.