NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases its CRE CLO Ramp-Up: From Beginning to End With More of the Same … So Far research report, which analyzes commercial real estate collateralized loan obligation (CRE CLO) ramp-up mechanics, provisions and trends observed in KBRA-rated transactions.
Ramp-up allows transaction sponsors to issue CRE CLOs, whereby the aggregate dollar balance of the liability structure exceeds the total balance of the mortgage collateral as of the closing date. The collateral manager can utilize the unused proceeds to acquire previously unidentified mortgage assets, which increases the efficiency of the CRE CLO, as the fixed costs associated with the creation, issuance, and maintenance of the vehicle can be spread over a larger transaction.
The ramp-up feature has become fairly common among managed CRE CLOs over the past 18 months. A breakdown of the 18 managed CRE CLOs rated by KBRA since 2017 shows that 11 have incorporated ramp-up provisions, including seven of the last nine transactions. In addition, ramp-up has been substantial across the 11 transactions, accounting for $1.1 billion (16.2%) of the $6.7 billion in issuance. While some of the transactions are in their ramp-up period or still waiting to settle, we have observed over $685.3 million of aggregate ramp-up assets being acquired.
Generally, ramp-up assets have so far had credit characteristics that were consistent with the initial pool. In the transactions that have completed their ramp-up periods, deal weighted average credit metrics have not meaningfully changed between issuance and ramp-up: KBRA loan-to-values (KLTVs) have not changed by more than 1.5%, KBRA debt yield (KDY) has generally stayed rangebound between one-tenth and two-tenths of a percent, and KBRA cap rates have moved less than 0.15%. Not surprisingly, concentration—as indicated by loan Herfindahl Index (HERF)—has increased with the addition of new loans and, consistent with what we see happening with CRE CLO issuance trends, average loan spread compressed in all the deals after ramp-up.
To view the report, click here.
Related Publications: (available at www.kbra.com)
- CRE CLO Trend Watch: Issuance and Performance Holds Steady in Q1 2019
- CRE CLO Experiencing Sizeable Prepayments
- Managed CRE CLO Eligibility Criteria: An Inside Look
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.