Morgan Stanley is tapping the securitization market with a $885.4 million commercial mortgage conduit transaction.
Kroll Bond Ratings Agency has given preliminary ratings to the seventeen classes of certificates in its presale report.
The deal, MSCI 2015-MS1, is backed by 53 commercial mortgage loans that are secured by 59 properties. There are six class A senior tranches totaling $671.8 million that are rated AAA’ by Kroll and benefit from 30% credit enhancement.
Loans in the pool have principal balances ranging from $1.9 million to $80 million and weighted average (WA) life of 9.4 years.
Leverage for the overall pool is lower than the last 20 CMBS conduits rated by Kroll over the past six months. The Kroll-adjusted weighted average (WA) loan-to-value (KLTV) ratio of 97.5% compared to the average KLTV of 102.8% of the last 20 CMBS conduits.
However, the weighted average KLTV is skewed by three loans: 32 Old Slip Fee (3rd largest, 6.8%), Alderwood Mall (5th largest, 5.7%), and 841-853 Broadway (6th largest, 5.6%), all of which have low in-trust KLTVs ranging from 41.1% to 62.5%. Without these loans, the WA KLTV is 107.1%. High leverage implies that borrowers have lower equity levels, which increases the risk of default.
The deal is heavily exposed to retail properties (41.9%), but also consists of a high percentage of multifamily properties (16.7%) and leased fee- office buildings (14.3%). The properties are most heavily concentrated in New York (26.4%) and California (20.9%).
A large portion of the riskiness of this deal lies in the fact that the top ten loans represent 57.7% of the pool. Therefore, the transaction is more sensitive to credit volatility because if any of the larger loans default, a large proportion of the overall balance is affected.
A key strength of the pool is its high primary market exposure at 72.6%. This is higher than any of the previously rated CMBS conduit by Kroll, which averaged 45.8% over the past six months. The diverse economies of primary markets are more likely to withstand fluctuations and potential downturns in the national economy.
Eight loans in the pool (21.3%) have existing additional debt and/or permit future additional debt. By comparison, this is lower than the average exposure to such loans in the previous 20 conduits rated by Kroll, which was 22.9%. The lower aggregate debt burden decreases borrow insolvency risk.