American Homes 4 Rent is sticking with a feature that reduces refinancing risk in its upcoming single family rental (SFR) securitization, according to Kroll Bond Rating Agency.
The issuer first introduced this feature, called an anticipated repayment date (ADR) in its February transaction, AH4R 2015-SFR1.
Its latest deal, AH4R 2015-SFR2, is backed by a $477 million, fully-amortizing 30-year loan with an ADR of 10-years. The loan underwritten by Goldman Sachs is secured by 4,125 single family rentals.
With a legal maturity of October 2052, the loan has a term of 30 years, longer than the five or 10 years that is more standard in this assets classes. With so many deals maturing at the same time, there is a risk that they would be difficult to refinance. Stretching the term out to 30 years involves risk as well since there are more payments on which a borrower can default.
However, the loan's ARD of 2025 means that it functions more like a 10-year loan, except that there is an option to extend it.
ARD structures have been part of the CMBS landscape for some time but it is only the second SFR securitization to employ the feature. At the end of a 10-year period, instead of having a maturity where you have to pay the bonds back, there is an ability to extend the term of the bonds.
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, thereby not causing increased term default risk. Once the ARD is reached, all excess cash flow must be used to pay down the balance of the loan.
Kroll has assigned preliminary ‘AAA’ ratings to the class A notes; ‘AA+’ ratings to the class B notes, ‘AA-’ ratings to class C notes; ‘A-’ ratings to class D notes and ‘BBB-’ ratings to class E notes. The notes mature on October 2052.
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.