NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) is monitoring SCG Trust 2013-SRP1, a $760.0 million CMBS single borrower transaction which is collateralized by a single loan with an initial maturity date of November 8, 2016. On September 30, 2016, KBRA was notified by the master servicer, Wells Fargo Bank, N.A., that a one year extension of the loan has been requested by the borrower. Among the requirements for the borrower to extend the loan, it must meet an 11.0% debt yield hurdle. Based on information provided by the servicer, the loan will be challenged to meet the debt yield test and a loan modification has been requested.
The first lien, floating rate loan was originated with a three-year term with two, one-year extension options. It is secured by the borrower’s fee simple and leasehold interests in five regional malls located in California (two properties), Ohio (two), and Washington (one). Collectively, the five collateral properties comprise 5.8 million sf, of which 3.1 million serves as loan collateral. The loan is interest-only for the entire term and has an outstanding balance of $760.0 million ($209 per sf) as of September 2016.
The servicer calculated NOI debt yield for the trailing twelve month period ending August 2016 was 10.07%. At this time, the loan remains current and KBRA is not aware of an imminent transfer to the special servicer. The contemplated loan modification, which is being reviewed by the master servicer, will lower the debt yield requirement to 10.0% during the first one-year extension option period. In addition, the borrower will be required to deposit $5.0 million on the loan modification date and remit monthly payments during the first extension term totaling $10.0 million into a Principal Reserve Account. The account will be held as additional collateral for the loan until it is repaid in full.
The second one-year extension option requires a debt yield of 11.25%, which will remain unchanged from the original loan terms. However, the borrower will be allowed to escrow the debt yield shortfall in order to meet the second loan extension debt yield test. The debt yield shortfall amount will be deposited into the Principal Reserve Account and held as additional collateral for the loan until the loan is repaid in full.
A full surveillance review of the transaction was completed in December 2015, at which time all ratings were affirmed. As of the trailing twelve month period ending April 2016, the portfolio achieved the portfolio’s weighted average sales of $405.33 per sf. The servicer reported DSC, as of the trailing twelve-month period ending August 2016, was 4.00x. KBRA has been in contact with the master servicer regarding the nature of the potential modification, and has requested information to perform a full surveillance review. KBRA will continue to monitor developments surrounding the extension as it performs the analysis needed to complete the review. Should the performance of the transaction necessitate a Watch placement and/or rating changes we will issue an updated press release, which will be available on our web-site.
KBRA was initially made aware of the potential modification in conjunction with a request regarding whether or not it would result in a downgrade, qualification, or withdrawal to any of the transaction’s current outstanding ratings. KBRA typically receives, and reviews, post securitization requests regarding a number of contemplated matters, which may include loan assumptions, defeasance, and servicer changes. Generally, KBRA does not review matters regarding loans that are in special servicing, as the circumstances surrounding special servicer transfers may involve potential loan defaults or other circumstances that, by definition, are more likely contribute to rating downgrades. Similarly, KBRA does not review such requests on performing loans that, absent approval, will result in a default and/or special servicing transfer. Rather, we rely on the transaction parties to address the matter in accordance with their obligations under the transaction documents and will react to credit ramifications, if any, by effectuating a rating watch and/or change. As such, the request to review the matter was promptly declined, although based on available information we don’t believe the contemplated modification, in and of itself, will result in a downgrade, qualification, or withdrawal of the securitization’s outstanding ratings.
Representations & Warranties Disclosure:
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 here.
Related Publications: (available at www.kbra.com)
- SCG Trust 2013-SRP1 2015 Surveillance Report
- SCG Trust 2013-SRP1 Pre-Sale Report
- CMBS Property Evaluation Methodology
- CMBS Single Borrower and Large Loan Rating Methodology
- Methodology for Rating Interest-Only Certificates in CMBS Transactions
About Kroll Bond Rating Agency
KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).