Fitch Affirms Lone Star Portfolio Trust 2015-LSP

NEW YORK--()--Fitch Ratings affirms nine classes of Lone Star Portfolio Trust 2015-LSP Commercial Mortgage Pass-Through Certificates, Series 2015-LSP. A full list of rating actions follows at the end of this release.

The certificates represent the beneficial interest in a trust that holds a three-year, floating-rate, interest-only initial term loan in the original amount of $708 million and an outstanding balance of $544.2 million. The mortgage loan is secured by the fee interests in 79 office and three industrial properties. The loan is sponsored by Lone Star Real Estate Fund IV (U.S.), L.P. (Lone Star).

KEY RATING DRIVERS

Fitch Leverage: The $544.2 million loan has a Fitch debt service coverage (DSCR) and loan-to-value (LTV) of 1.02x and 90.5%, respectively, totaling $64 per square foot (psf). At issuance, the $705 million loan had a Fitch DSCR and LTV of 1.01x and 91.8%, respectively, totaling $68 psf. The portfolio was acquired for a total cost of $1.056 billion ($102 psf), implying a loan to cost ratio of 66.8%.

Geographically Diverse and Granular Pool: The loan is secured by 79 office and three industrial assets located in 16 states in generally suburban locations. At issuance, the portfolio consisted of 103 assets. The three states with the greatest concentration are Illinois (24.6% of allocated loan amount [ALA]), Minnesota (22%) and Massachusetts (21.6%); no other state represents more than 7.9% by ALA.

Future Funding Amount: The financing includes a future funding mortgage loan of up to $103 million, which will be available to reimburse the sponsor (up to 80%) for capital expenditures, and tenant improvements and leasing commissions associated with accretive growth in net operating income (NOI). The budgeted amount totals $25.4 million for capex and $101.8 million for leasing costs. The reimbursement will be subject to, among others, the debt yield following the draw being equal to or greater than the debt yield at closing of 12.8%. Fitch's analysis gave no credit for leasing improvement or incremental cash flow and, therefore, assumes a limited amount of the future funding amount is drawn during the loan term.

Sponsorship: The loan is sponsored by Lone Star. Lone Star is a global private equity firm that invests in real estate, equity, credit and other financial assets. Since the establishment of its first fund in 1995, Lone Star has organized 15 private equity funds with aggregate capital commitments totaling approximately $60 billion. Hudson Advisors, Lone Star's asset management affiliate, will serve as asset manager of the portfolio and has a track record in repositioning capital-starved and/or mismanaged commercial assets.

Modified Pro Rata: The transaction has a pro rata pay schedule for the initial 15% of release paydown. As a result, the most senior certificates will not de-lever as quickly as in a traditional sequential-pay structure where all principal is allocated to the most senior class. However, the transaction is structured with release price premiums of 120% of the funded mortgage debt and minimum debt yield tests. Principal is now allocated sequentially as the transaction has paid down 22.8%.

RATING SENSITIVITIES

The Rating Outlooks remain Stable. Fitch does not foresee negative rating migration unless a material economic or asset level event changes the transaction's portfolio-level metrics.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

No third party due diligence was provided or reviewed in relation to this rating.

Fitch has affirmed the following ratings:

--$57.9 million class A-1A1 at 'AAAsf'; Outlook Stable;

--$169.5 million class A-1A2 at 'AAAsf'; Outlook Stable;

--Interest-only class X-CP at 'BBB-sf'; Outlook Stable;

--Interest-only class X-EXT at 'BBB-sf'; Outlook Stable;

--$58.9 million class B at 'AA-sf'; Outlook Stable;

--$40.1 million class C at 'A-sf'; Outlook Stable;

--$56.3 million class D at 'BBB-sf'; Outlook Stable;

--$97.3 million class E at 'BB-sf'; Outlook Stable;

--$64.3 million class F at 'B-sf'; Outlook Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Analyzing Large Loans in CMBS (pub. 01 Dec 2016)

https://www.fitchratings.com/site/re/890892

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)

https://www.fitchratings.com/site/re/882401

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Related Research

Lone Star Portfolio Trust 2015-LSP -- Appendix

https://www.fitchratings.com/site/re/873277

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015680

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015680

Endorsement Policy

https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Jeffrey Diliberto, +1-312-368-3268
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Fitch Ratings
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jeffrey Diliberto, +1-312-368-3268
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson
Mary MacNeill, +1-212-908-0785
Managing Director
or
Fitch Ratings
Sandro Scenga, +1-212-908-0278 (New York)
sandro.scenga@fitchratings.com