FirstKey Lending, which is majority owned by funds managed by Cerberus Capital Management, is securitizing $241 million of fixed rate loans it made to landlords for the purchase of buy-to-rent, single-family homes according to a presale from Kroll Bond Ratings Agency.
The deal follows B2R Finance's announcement last Friday of its first multiborrower, single family rental (SFR) securitization.
FirstKey Lending's 2015-SFR1 is backed by 16 loans made to ten borrowers, a much smaller pool than the 144 loans securitized by the B2R tranaction. The loans range in size from $2.9 million to $51.3 million.
Kroll plans to assign preliminary AAA’ ratings to $159 million of class A notes.
The largest loan in the pool, sponsored by American Homes 4 Rent, represents 21.3% of the pool. Proceeds from the loan were used for property acquisition. American Homes 4 Rent is also an originator in this sector, having issued four single-borrower SFR securitizations. Its most recent deal, AH4R SFR 2015-1, priced in February.
In total the loans pooled in FirstKey Lending’s multiborrower SFR securitization will be secured by 3,628 of mostly single-family homes. Compared to the previous 16 single-borrower SFR transactions, the homes are smaller and older. All else being equal, Kroll considers smaller, older homes a harder sell in an event of a default, since they may be less desirable to potential purchasers.
The homes also bring in less rental cashflow compared to previous single-borrower SFR deals. The weighted average monthly rent for the leased properties is approximately $1,151, lower than the $1,522 average for the homes in previous single borrower SFR transactions. The WA rents for those transactions ranged from $1,187 to $1,807.
Most of the homes are located in Florida (26.8%), Georgia (19.3%), and California (14.2%).
The transaction is less levered than previous single-borrower SFR deals, with a loan to value ratio of 63.1% compared to an average 72.7% for previous transactions. Lower leverage generally implies greater borrower equity, lower likelihood of default, and lower overall loss severity following an event of default.
The $159 million of class A notes have credit support of 37.7%. Kroll expects to assign 'AA-' to $26 million of class B notes that offer credit support at 27%, A-’ ratings to $18 million of class C notes with credit support at 10.7% and BBB- ratings to the $21 million of class D notes with credit support of 5.5%. The deal also contains four additional classes of subordinate notes not rated by Kroll.
FirstKey Lending was formed in the first half of 2013 to originate, finance, and/or securitize mortgage loans primarily secured by portfolios of 1-4 family rental properties. The issuer has originated approximately $599 million of single-family rental loans to approximately 99 borrowers. It offers loans from two single-family rental lending programs: Premier and Express. The Express program targets borrowers who require loans of up to $5 million, while the Premier product is geared to borrowers who require financing in excess of $5 million.