NEW YORK--()--Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of ‘BBB- (sf)’ preliminary ratings to Class A of the RIAL, Series 2013-LT2 transaction. RIAL Series 2013-LT2 is a non-performing loan (NPL) securitization of 1,472 small-balance NPL, real-estate-owned (REO) properties, and performing loans (collectively, the assets), which are related to 761 unique borrower relationships. The assets were acquired by Rialto Real Estate Fund, LP (together with its affiliates, Rialto) from eight financial institutions for $345.9 million, and have an aggregate unpaid principal balance (UPB) of $843.6 million. The transaction is structured as a liquidation vehicle that monetizes recoveries from the assets to pay the rated notes.
The underlying collateral is comprised of commercial and multifamily real estate properties (65.3% of acquisition basis), land (20.6%), residential assets that primarily consist of homebuilder inventory (12.5%), and other collateral (1.7%). The collateral is predominantly located in the south-eastern and southern United States. The top-three state exposures include Florida (17.5%), Georgia (17.1%), and South Carolina (9.2%). The average balance of the assets based on acquisition basis and UPB is $234,991 and $573,108, respectively. The largest, top-ten, and top-50 relationships comprise 3.4%, 20.1%, and 48.9% of the pool’s acquisition basis, respectively.
To evaluate and rate this transaction, KBRA followed a multi-step “ground-up” approach, which leveraged our commercial and residential real estate methodologies. KBRA derived a “baseline value” for each collateral item using one or more methods. These included the income capitalization approach, comparable sales approach, as well as discounting third party valuation conclusions and the asset manager’s estimates of net sales proceeds. The baseline values were adjusted to derive KBRA’s Baseline Recovery Proceeds, reflective of the following, as and where applicable: KBRA’s stressed resolution path and timeline, NOI captured from defaulted and REO assets, carry costs for non-income producing assets, legal and foreclosure costs, property sales costs, deferred maintenance, and accrued unpaid taxes. The baseline recovery proceeds were stressed further to determine higher level investment grade stresses. The resulting proceeds were applied to the transaction waterfall to determine our credit rating. Overall, on a weighted average basis, KBRA’s baseline recovery proceeds were 38.4% of the UPB, 93.7% of Rialto’s acquisition basis, and 61.6% of Rialto’s estimated net disposition proceeds.
The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.
|Initial Class||% of Rialto’s||% of Rialto’s||% of Unpaid|
|Class of Notes||Rating||Balance||Acquisition Basis||Projected Net||Principal|
(1) Based on an assumed coupon of 3.00%.
All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report entitled CMBS: RIAL, Series 2013-LT2 17g-7 Disclosure Report.