Barclays is sponsoring its next conduit CMBS transaction through sponsoring the $1 billion BBCMS 2019-CS trust offering, according to Kroll Bond Rating Agency.
Fifty-five loans secured by 115 properties are in the deal, which will issue nineteen classes of certificates. It is a multi-faceted deal in which 13 classes of notes will be entitles to interest and principal payments; four classes will receive interest-only notes, and one class is entitled to excess residual interest, according to an assessment by Kroll.
The pool, while considered diverse by Kroll, has risk factors including single-tenant loans and retail exposure.
According to Kroll, the loans have principal balances ranging from $2.2 million to $66 million, with the largest loan belong to the GNL Office and industrial portfolio of 12 single-tenant industrial and office properties in 10 states.
The five largest loans, which also include Presidential City (4.5%), Caesar's Bay Shopping Center (4.2%), NEMA San Francisco (4.0%) and Equinix Data Center (4.0%), represent 23.3% of the initial pool balance, while the top 10 loans represent 40.6%
Among the deal’s key credit considerations is that the overall collateral pool has a weighted average in-trust Kroll loan-to-value ratio of 98.2 percent, a modest increase 97.4 percent for the 19 CMBS conduits rated by Kroll over the past six months. The pool’s KLTV is also above the annual averages for bonds rated by Kroll, and – except for 2014 and 2015 – issued over the past six years.
Despite those increases, Kroll also found that KLTVs were in excess of 100 percent is below the 58.2 percent average for the comparison set. That statistic ranged from 32.9 percent to 84.2 percent.
Another ratings driver is the interest-only (IO) Index for each loan. Kroll calculated this by dividing the number of interest-only payments by the loan term. The transaction has an interest-only loan share of 66.8 percent of the pool, which is higher than the average of 65.6 percent.
Kroll also expressed concern about additional indebtedness on a significant portion of the collateral pool. More than thirty-seven percent of the pool, or 17 loans, carry subordinate debt. This is higher than the average of 28.8 percent of comparable deals. Loans that permit future additional debt require that certain conditions be satisfied that generally include combined debt-service coverage ratios, and loan-to-value tests.
Kroll noted that a higher aggregate debt burden increases borrower insolvency risk. Further, additional creditors could attempt to remedy the additional debt in a way that might adversely affect the trust. Those creditors could also support a bankruptcy, if one occurred, that would also be adverse to the trust’s interests.
The rating agency gave preliminary ratings of AAA to the first six classes, from A-1 to A-S; AA to class B; and A to class C. It gave a rating of BBB+ to class D; BBB to class E; BB to class F; and B+ to class G-RR.
Among the interest-only certificates, Kroll assigned AAA to classes X-A class X-B. It assigned a preliminary rating of BBB to class X-D and BB to class X-F.
