AREIT 2021-CRE5 is preparing to issue $989 million in collateralized loan obligations (CLO), secured by a pool of commercial real estate mortgages. In a move that is becoming increasingly commonplace in commercial real estate CLOs, the servicer will not be required to take actions that align with the servicing standard for certain modifications.
The collateral manager can direct the servicer to make certain modifications that are not subject to the servicing standard, according to Kroll Bond Rating Agency, which expects to rate the notes. Those modifications relate to fees for exits and extensions, financial covenants relating to debt yield (including cash management triggers), reserve accounts, for the requirement for a borrower to obtain an interest rate cap agreement in connection with an extension.
While this leeway is becoming more commonplace in CRE CLOs, it is atypical for other forms of securitizations, and could stole conflicts of interest within the transaction. It could also allow administrative modifications that would otherwise not be permitted and expose noteholders to adverse effects, KBRA said.
The trust will have significant flexibility to modify up to eight performing loans in the collateral pool of about 36 loans. AREIT 2021-CRE5 can also buy out defaulted and assets further out on the credit risk spectrum.
AREIT can reinvest certain proceeds to acquire future funded companion loan participations related to initial transaction collateral. The sponsor can also buy out defaulted and credit risk assets, KBRA said.
Currently, the collateral consists of 12 whole loans, representing 39.9% of the pool, and 23 pari passu participations, at 60.1%. All 23 of the participated loans have a related unfunded future advance obligation, according to Kroll Bond Rating Agency, which expects to rate the notes.
When broken down by property type, the collateral pool is comprised mostly of multifamily loans (70.7%). Office follows with a 10.8% concentration of the loan pool, and lodging is third with 8.0%, KBRA said.
On a weighted average basis, the loans have three months of seasoning, and all of the loans have extension options should certain conditions be met. KBRA also noted that none of the loans carry existing subordinate indebtedness such as mezzanine financing, nor are they permitted to incur future additional subordinate debt.
The notes have a maturity date of November 2038.
