AH4R American Homes 4 Rent has completed its second single-family rental securitization of the year, the sponsor announced in a press release today.
Similar to the its February transaction, AH4R 2015-SFR2, features an anticipated repayment date (ARD) of 10-years on bonds that are structured with a 30-year final maturity. The mechanism, commonly found in commercial mortgage bonds, reduces refinancing risk.
The $477.7 million of notes will pay investors a weighted average coupon rate of 4.361% for the first 10 years. Kroll Bond Ratings Agency assigned a preliminary ‘AAA’ rating to the class A notes; ‘AA+’ to the class B notes, ‘AA-’ to class C notes; ‘A-’ to the class D notes and ‘BBB-’ to the class E notes.
By comparison, the certificated issued under AH4R 2015-SFR1 pays 4.138% for the first 10 years.
The loan bakcing AH4R 2015-SFR2 is fully-amortizing, underwritten by Goldman Sachs, and secured by 4,125 single-family rentals.
The transaction's 30-year legal maturity compares with five or 10 years for most deals in this asset class.
However, the loan's ARD means that it functions more like a 10-year loan, except that there is an option to extend it. At the end of a 10-year period, the borrower can either repay the loan or extend it.
This addresses the risk that, with so many of the single family rental deals maturing at the same time, they could be difficult to refinance.
Stretching the term out to 30 years involves additional risk as well, since there are more payments on which a borrower can default.
If the loan is not paid in full by the ARD, the interest rate increases. However, Kroll said in its presale report that excess interest is payable after the loan has been paid in full, reducing term default risk. Once the ARD is reached, all excess cash flow must be used to pay down the balance of the loan.
The transaction is the fifth securitization issued by American Homes 4 Rent. As of June 30, 2015, the issuer owned approximately 37,491single-family homes situated in 22 states across 41 submarkets. Of the total portfolio, 93.1% of the properties were leased.