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Morgan Stanley and Bank of America Merrill Lynch’s latest commercial mortgage conduit pools loans with unusually low leverage relative, at least by recent standards, according to Kroll Bond Rating Agency.
The $1 billion MSBAM 2015-C26 is backed by loans with a weighted average loan-to-value ratio, as calculated by Kroll (KLTV), of 98.3%. Only three other deals rated by Kroll in the last six months had KLTVs below 100.0%.
Just three weeks ago, the sponsors were marketing MSBAM 2015-C25, which was backed by a pool of highly leveraged loans.
The lower leverage in MSBAM 2015-C26 is attributable to two differen factors: the inclusion of the investment grade loan, 11 Madison Avenue (the loan has been securitized in four other conduits), and a lack of exposure to loans with very high KLTVs, those in excess of 100%. Kroll said that only 42 loans, or 51.5% of pool, have KLTVs of 100%. That’s the lowest among the all of the conduits it has rated over the last six months. The exposure to high leverage loans in these transactions ranged from 52.4% to 81.4%, with an average of 70.4%.
Even without the 11 Madison Avenue loan, leverage in the pool remains relatively low, with a KLTV of 102.8%. By comparison of the 16 conduits the rating agency has rated since April that included investment grade loans the resulting LTV without the investment grade loans would average 106.3%.
Most of the loans in the pool have 10-year terms and pay only interest for either part of their term (39.4%) or for their entire terms (32.1%)
Kroll assigned preliminary 'AAA' ratings to super senior notes with 30% credit enhancement as well as to senior notes with 22.6% credit enhancement. At the subordinate level the rating agency assigned ratings ranging from 'AA-' to 'B-'. The 'BBB-' rated, class D notes benefit from 8% credit enhancement.