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Bancorp's next CRE CLO has even higher multifamily exposure

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Bancorp Bank is making its first offering of the year of bonds backed by short-term loans used to rehab or repurpose commercial property.

Bancorp 2019-CRE5 will be collateralized by 61 whole loans and participations with an aggregate cut-off date principal balance of $518.3 million. Like all of the bank's previous commercial real estate collateralized loan obligations, it is a static transaction; all of the assets have been identified and return of principal cannot be reinvested. It has an even higher proportion of multifamily properties than the two deals the sponsor completed in 2018.

The pool contains 46 loans (82.4% of the pool balance) secured by multifamily properties; that's up from 78.8% for the bank's previous CRE CLO, completed in September, and 58% for a deal it completed last April. Loans secured by multifamily properties have historically exhibited lower severity rates than loans secured by other commercial property type. Another positive: there are only three hotel properties (5.4% of the pool balance) and just eight office properties (5.8% of the pool balance), which are considered to be more volatile asset classes.

Both Kroll Bond Rating Agency and Moody's Investors Service consider the deal to be highly leveraged; Kroll puts the loan-to-value ratio at 117.9%. However, this is the second lowest of the 20 CRE CLO transactions it rated over the past 12 months. Moody's puts it even higher, at 132.4%, which is "well above" transactions the rating agency rated in 2018, as well as previous Bancorp transactions, which had an average LTV, as measured by Moody's of 125.8%.

Both Moody's and Kroll expect to assign triple-A ratings to the super senior tranche of notes to be issued, which benefit from 48.8% credit enhancement. Kroll alone is assigning an AAA to the junior A tranche, which benefits form 35.5% credit enhancement.

Unlike most CRE CLOs, the first loss position will be purchased by a third party that is an affiliate of Basis Management Group.

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