Fitch Ratings is questioning the ratings assigned to the securitization of a single commercial mortgage secured by five Kyo-Ya hotel properties.
In a report published today, the ratings agency said in a report today that the deal, COMM 2014-KYO, is an example of the dangerous large amounts of leverage being offerd by commercial mortgage bond lenders.
Deutsche Bank is the sponsor of the $1.4 billion deal, which is a refinancing of similar deal completed in January 2013.
The propsed transaction would add $300 million in debt, while removing one of the weaker performing properties — the 1,142-room Sheraton Princess Kaiulani — as collateral. “The increase in total debt and the reduction in supporting collateral should give investors pause,” Fitch stated in its report. It noted that both transactions, the properties being used as collateral also secure additional, mezzanine debt not included inteh securitizatione trust.
The previous Kyo-Ya financing, GSMS 2013 KYO, totaled $1.1 billion or $213,178 per room. In comparison, the current COMM 2014-KYO transaction equates to $348,606 of debt per room.
Fitch, which initially reviewed but ultimately did not rate COMM 2014-KYO, said that the high leverage, “combined with a reduced collateral pool compared to last year’s transaction, a management transition, and potentially peak performance” would have resulted in lower subordinate bond ratings by than those assigned by Morningstar and Standard & Poor's.
At the subordinate level, the capital structure offfers $90 million of class D notes with a prelimary BBB+’ rating from Morningstar; $98 million of BBB-’ rated class E notes; $286 million of BB-’ rated class F notes and $40 million of B+’ rated class G notes.
S&P rated the subordinated notes at equivalent levels: assiging a prelminary 'BBB' to the class D notes; 'BBB-' to the class E notes; 'BB-' to the class F notes; and B+' to the class G notes.
Fitch said that it would have not rated the class E notes higher than BB-,’ three nothes lower than Morningstar's rating.