Kroll Bond Rating Agency Assigns Preliminary Ratings to LCCM 2017-LC26

NEW YORK--()--Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to 14 classes of the LCCM 2017-LC26 transaction (see ratings list below). LCCM 2017-LC26 is a $625.7 million CMBS conduit transaction collateralized by 57 commercial mortgage loans secured by 69 properties.

The underlying collateral properties are located in 24 states, with four state exposures that each represents more than 10.0% of the pool balance: California (20.2%), New Jersey (11.1%), Pennsylvania (10.9%), and New York (10.1%). The pool has exposure to most of the major property types, with three that each represents more than 15.0% of the pool balance: office (40.2%), retail (20.2%), and lodging (18.5%). The loans have principal balances ranging from $846,000 to $61.8 million for the largest loan in the pool, Marriott LAX (9.9%), a full-service hotel located less than a mile from the Los Angeles International Airport (LAX). The top five loans, which also include Two Riverfront Plaza (8.8%), Bank of America Office Campus Buildings 200 – 500 (8.4%), Peoples Center (7.5%), and SOMO Village (6.7%), represent 41.2% of the initial pool balance, while the top 10 loans represent 60.6%.

KBRA’s analysis of the transaction incorporated our multi-borrower rating process that begins with our analysts' evaluation of underlying collateral properties' financial and operating performance, which determine KBRA’s estimate of sustainable net cash flow (KNCF) and KBRA value using our CMBS Property Evaluation Methodology. On an aggregate basis, KNCF was 7.8% less than the issuer cash flow. KBRA capitalization rates were applied to each asset’s KNCF to derive values that were, on an aggregate basis, 38.5% less than third party appraisal values. The pool has an in-trust KLTV of 100.5% and an all-in KLTV of 107.9%. The model deploys rent and occupancy stresses, probability of default regressions, and loss given default calculations to determine losses for each collateral loan, which are then used to assign our credit ratings.

For complete details on the analysis, please see our presale report, LCCM 2017-LC26 published today at www.kbra.com. The report includes our KBRA Comparative Analytic Tool (KCAT), an easy to use, Excel-based workbook that provides the following information:

  • KBRA Deal Tape – Contains KBRA loan level details for every loan in the pool, and the ability for users to input adjustments to KNCF and KBRA Cap Rates and see the related impact on key deal metrics.
  • KBRA Credit Metrics Comparison Tool – Enables the user to compare the subject transaction to a user-defined transaction comp set. The feature provides many of the fields that are included in our CMBS Monthly Trend Watch publication.
  • Excel-based property cash flow statements for the top 20 loans.

Preliminary Ratings Assigned: LCCM 2017-LC26

Class     Initial Class Balance     Expected KBRA Rating
A-1     $20,163,000     AAA(sf)
A-2     $89,600,000     AAA(sf)
A-SB     $31,969,000     AAA(sf)
A-3     $125,000,000     AAA(sf)
A-4     $171,225,000     AAA(sf)
X-A     $437,957,000*     AAA(sf)
X-B     $100,104,000*     AAA(sf)
X-D     $35,975,000*     BBB(sf)
A-S     $39,103,000     AAA(sf)
B     $28,937,000     AA(sf)
C     $32,064,000     A(sf)
D     $35,975,000     BBB(sf)
E     $17,206,000     BB(sf)
F     $7,038,000     B+(sf)
G     $27,373,188     NR
Retained Interest**     $12,332,000     NR

*Notional balance

** To satisfy the requirements under the US risk retention rules, LCF or a majority-owned affiliate is expected to retain an “eligible vertical interest” on the closing date to purchase for cash approximately 1.97% of the certificate balance, notional balance or percentage interest of each class of certificates (VRR Interest). To satisfy the remaining US risk retention obligations, KKR, as third party purchaser, is expected to purchase 98.03% of the Class E, F and G certificates (HRR Interest) representing approximately 3.04% to 3.20% of the aggregate fair value of the non-residual certificates determined in accordance with GAAP.

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: LCCM 2017-LC26 Representations & Warranties Disclosure Report.

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

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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
Kenneth Kor, 646-731-2339
kkor@kbra.com
or
Yee Cent Wong, 646-731-2374
ywong@kbra.com
or
Robin Regan, 646-731-2358
rregan@kbra.com
or
Griffin Flagg, 646-731-2433
gflagg@kbra.com

Contacts

Analytical:
Kroll Bond Rating Agency
Kenneth Kor, 646-731-2339
kkor@kbra.com
or
Yee Cent Wong, 646-731-2374
ywong@kbra.com
or
Robin Regan, 646-731-2358
rregan@kbra.com
or
Griffin Flagg, 646-731-2433
gflagg@kbra.com