JPMorgan is dipping into its toolbox for a type of financial engineering rarely seen these days: “re-REMIC,” or a securitization of real-estate mortgage investment conduits.
The $484.9 million JPMCC 2016-FLRR is a securitization of the senior notes issued in other recent commercial mortgage securitizations: JPMCC 2016-FL8 and JPMCC 2016-H2FL.
In the aftermath of the financial crisis, re-REMICs were used to make soured securities look better, allowing the banks and insurers that held them to achieve better capital treatment. Mortgage bonds that had been sharply downgraded were bundled into collateral for new bonds that were tranched according to their payment priority. Those bonds first in line to receive cash from the underlying collateral received investment grade credit ratings.
This transaction is also achieving a rating uplift. They were rated ‘BBB-‘ (the lowest investment grade rating) by Standard & Poor’s at issuance in March; but KBRA expects to assign a ‘AAA’ rating to the senior tranche of the re-remic. It is not rating the four subordinate tranches.
The JPMCC 2016-FL8 class A certificates have a stated annual coupon of one-month Libor plus 222 basis points and the JPMCC 2016-H2FL class A certificates have a stated annual coupon of Libor 210 basis points. Each of these classes of securities, in turn, are backed by five first-lien commercial mortgages that are also index to Libor.
All of the underlying loans were originated between November 2014 and December 2015 and were structured with an initial loan term of two years with three 12-month extension options.
The 36 underlying properties are located in 11 states with four state exposures that each exceeds 10% of the re-securitization trust balance: Texas (22.4%), Virginia (14.1%), California (12.8%) and Massachusetts (10.9%). The underlying loan pool has exposure to four property types: office (43.8%), lodging (34.5%), retail (13.5%), and industrial (8.2%).