Kroll Bond Rating Agency Assigns Preliminary Ratings to VCC 2017-1

NEW YORK--()--Kroll Bond Rating Agency (KBRA) has assigned preliminary ratings to seven classes of Velocity Commercial Capital 2017-1 (VCC 2017-1) mortgage-backed certificates.

VCC 2017-1 is a $223.1 million securitization collateralized by 721 commercial loans secured by mortgages on 721 small balance residential rental and commercial real estate (CRE) properties. The pool consists adjustable-rate, full recourse loans, all of which fully amortize over their respective terms. The weighted average appraisal LTV and FICO score for the pool are 61.4% and 707, respectively.

The underlying collateral properties are located in 32 states and the District of Columbia, with the three largest state exposures representing 60.4% of the total pool balance: New York (29.1%), California (20.3%), and New Jersey (11.0%). The residential assets are comprised of 1-4 unit rental properties (476 assets, 54.6% of the aggregate pool balance). The commercial properties are largely comprised of multifamily (78 assets, 30.7% of CRE), mixed use (58 assets, 22.3% of CRE), retail (36 assets, 16.4% of CRE), and office (33 assets, 12.3% of CRE) properties. The remaining commercial properties (40 assets, 18.3% of CRE) include industrial/warehouse, auto service centers, and self-storage properties. The loans have principal balances that range from $39,179 (0.02%) to $2.7 million (1.2%), with an average of $309,381.

KBRA relied on its RMBS and CMBS methodologies to analyze the transaction based on the nature of the collateral, including its size, and the scope of information available. In doing so KBRA divided the pool into two distinct loan groups to which we applied a residential (sub-pool 1, 476 loans, 54.6% of the total pool balance) and commercial (sub-pool 2, 245 loans, 45.4%) analysis, respectively. KBRA determined credit enhancements at each rating category for both of the sub-pools assuming a straight sequential payment structure, which were combined and adjusted upward to reflect the quality of the collateral, diligence, and information quality relative to typical RMBS and CMBS transactions. In addition to credit enhancement in the form of subordination, the transaction structure provides for any available excess cash flow to be used to cover losses on the certificates on each distribution date. KBRA conducted cash flow modeling of the structure, which resulted in positive adjustments to the credit enhancements associated with each rating category.

For complete details on the analysis, please see our presale report, VCC 2017-1 published today at www.kbra.com. The preliminary ratings are based on information known to KBRA at the time of publication. Information received subsequent to this release could result in the assignment of ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: VCC 2017-1

 
Liability Structure
Class   Initial Class Balance   Subordination  

Expected
KBRA Rating

 

Rated Final
Distribution Date

A-FL   $73,444,000   34.15%   AAA (sf)   May 2047
A-FX   $73,443,000   34.15%   AAA (sf)   May 2047
M-1   $14,834,000   27.50%   AA (sf)   May 2047
M-2   $8,923,000   23.50%   A (sf)   May 2047
M-3   $9,592,000   19.20%   BBB (sf)   May 2047
M-4   $9,369,000   15.00%   BB (sf)   May 2047
M-5   $7,027,000   11.85%   B (sf)   May 2047
M-6   $15,278,000   5.00%   NR   N/A
M-7(1)   $11,153,535   0.00%   NR   N/A
XS(1),(2)   $223,063,635(3)   N/A   NR   N/A

(1) Such class is expected to be retained by the loan seller or an affiliate in satisfaction of the EU risk retention requirements and in satisfaction of the US risk retention requirements.

(2) Such class is expected to be retained by the loan seller or an affiliate in satisfaction of the US risk retention requirement. In addition, the Class P certificates, which have a principal balance of $100 and are entitled only to prepayment premiums and principal distributions in repayment of their principal balance, will also be retained by the loan seller or an affiliate in satisfaction of the US risk retention requirement.

(3) Notional balance equal to the aggregate principal balance of the mortgage loans.

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 asset-level representations, warranties and enforcement mechanisms set forth in the related offering documents when issuing credit ratings. KBRA’s disclosure for this transaction is contained in the report entitled CMBS: VCC 2017-1 Representations & Warranties Disclosure Report.

Related publications (available at www.kbra.com):

CMBS: VCC 2017-1 Presale Report
U.S. RMBS Rating Methodology
Residential Mortgage Default and Loss Model
CMBS Property Evaluation Methodology
CMBS: U.S. CMBS Multi-Borrower Rating Methodology

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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).

Contacts

Analytical:
Kroll Bond Rating Agency
Patrick Gervais, Senior Director
646-731-2426
pgervais@kbra.com
or
Pramit Sheth, Senior Director
646-731-2330
psheth@kbra.com
or
Daniel Tegen, Director
646-731-2429
dtegen@kbra.com
or
Robin Regan, Managing Director
646-731-2358
rregan@kbra.com

Contacts

Analytical:
Kroll Bond Rating Agency
Patrick Gervais, Senior Director
646-731-2426
pgervais@kbra.com
or
Pramit Sheth, Senior Director
646-731-2330
psheth@kbra.com
or
Daniel Tegen, Director
646-731-2429
dtegen@kbra.com
or
Robin Regan, Managing Director
646-731-2358
rregan@kbra.com