Colony American Homes is working on its third-ever single-family rental securitization, according to Kroll Bond Ratings Agency.
The issuer, which placed two transactions in 2014, plans to securitize a $673.8 million, five-year, floating-rate loan that pays only interest for the entire term via Colony American Homes 2015-1. A pool of 3,879 single-family rentals secures the loan, underwritten by JPMorgan Chase Bank.
Each of Colony's previous securitizations are collateralized by five-year loans, which means the issuer could potentially have around $1.7 billion of securitized debt maturing from mid-2019 to mid-2020. "The concentrated debt maturity profile may result in increased financial stress on the company," warned Kroll in the presale report.
Colony isn't the only issuer to face this potential refinancing risk. This week Progress Residential began marketing its third transaction securitizing a five-year loan, potentially exposing the issuer to $997.4 million of securitized debt coming due from the end of 2019 to mid-2020.
Colony's latest transaction has a higher loan-to-value ratio, 77.6%, than its first two deals. Both CAH 2014-1 and CAH 2014-2 had an LTV of 70%.
The LTV is also high relative to single-family rental transactions issued within the past 12 months, which had LTVs ranging from 65% to 78.9%, with an average of 72.8%, according to Kroll.
"Higher leverage generally implies less borrower equity, greater likelihood of default, and higher overall loss severity should an event of default occur," stated the presale.
The weighted average original term of in-place leases is 12.4 months, lower than the average of 14.6 months for the single-family rental transactions that were issued during the last 12 months. According to the presale, around 62.9% of the underlying leases expire during the next six months, from May 2015 to October 2015; this could expose the pool to an increase in capital expenditures and marketing expenses.
Kroll plans to rate the class A notes AAA, the class B notes AA, the class C notes A-, the class D notes BBB, the class E notes BBB-, the class E notes BBB- and the class F notes BB-.
Colony was formed in March 2012 to acquire, lease and manage single-family rental homes across the U.S.
As of April 30, 2015, the issuer had invested in excess of $3.4 billion in its portfolio of nearly 19,000 single-family rental homes. It is the third largest institutional single-family rental operator in the U.S., following Invitation Homes and American Homes 4 Rent.
After the completion of the subject transaction, Colony will have securitized approximately 58% of the properties in its portfolio.