The loss of revenue from the naming rights of the Kodak Theatre is negatively impacting the commercial mortgage-backed security that includes a mortgage for the renamed Hollywood and Highland Center, according to a report last week by analysts at Deutsche Bank Securities.
After Eastman Kodak recently entered bankruptcy protection, a judge terminated the 20-year agreement for the naming rights of the theater that was part of the loan's underwritten revenue in the WFRBS 2011-C2 CMBS deal.
The theater loan is the pool's biggest, equivalent to 13%, and was in the news recently because of the revenue related to the Kodak Theatre's naming rights.
Given the news, Deutsche analysts said that the loan does not appear as good as it did a year ago when it was securitized. However, it is still within the bounds of acceptable performance.
They emphasized that the fact pattern on this loan's history has more general lessons for CMBS buyers, specifically given the current origination market.
"The old real estate adage location, location, location holds true yet again," Deutsche analysts wrote in the report. "With a strong sponsor, a great location, brand name tenants and substantial investment in the property, there is not much to worry about even given the loss of some tenants and the Kodak agreement termination."
They added that the recent market activity on the related WFRBS 2011-C2 bonds confirms it. Two months ago or before the Kodak news happened, the LCF bond covered at +140 and midmarket indications on the bond yesterday were +132.
More generally, analysts stated that the loan demonstrated the embedded credit enhancement available in pools that have above-average quality properties.
Unfortunately, they stated that considering the current state of the origination market, these pools will become rarer versus the 2010-2011 production. Given these factors, analysts expect the bonds from pools originated over this time period will end up trading at a premium to transactions that were originated in 2012 and beyond.
