Morgan Stanley and Bank of America Merrill Lynch are marketing another highly leveraged commercial mortgage securitization, according to Kroll Bond Rating Agency.
The $935.4 million conduit, dubbed Morgan Stanley Bank of America Merrill Lynch Trust (MSBAM) 2015-C24, will issue 14 classes of certificates. The triple-A rated class A notes benefit from 30% credit enhancement. The class B, C, D, E, and F notes benefit from 17.875%, 13.5%, 8.375%, 5.375%, and 3.5% credit enhancement, respectively.
All of the notes reach final maturity in August 2047.
The deal is backed by 74 commercial mortgage loans that are secured by 130 properties. Loans in the pool have principal balances ranging from $1.6 million to $110 million, and a weighted average (WA) life of 9.3 years.
The loans will be sold to depositor Morgan Stanley Capital I on the securitization closing date by four mortgage loan sellers: Morgan Stanley Mortgage Holdings (49%), Bank of America, National Association (26.5%), CIBC Inc. (14.2%), and Starwood Mortgage Funding III (10.4%).
The beginning Kroll-adjusted WA loan-to-value ratio (KLTV) is 106%, which is higher than the average KLTV of 103.1% for the last 21 CMBS transactions rated by Kroll over the past six months. Although this deal is considered to be highly leveraged, MSBAM 2015-C23, which was launched in June, had an LTV ratio of 113.1%.
Additionally, 68.9% of the overall pool is exposed to high leverage loans with KLTVs higher than 100%, which is also higher than the average exposure of conduits exposed to high leverage loans over the past six months (67.3%).
The fourth largest loan in the pool, 32 Old Slip Fee, has a low KLTV of 62.5%. Considering this loan comprises 5.3% of the pool, its low KLTV ratio skews the leverage value of the overall pool. Without this loan, WA KLTV would be 108.4% and high leverage loan exposure would rise to 72.7%, according to Kroll.
Another risk of the deal lies in its high exposure to secondary (38.1%) and tertiary (22.1%) markets. Primary markets, which only account for 39.8% of the transaction, are known to better withstand fluctuations and downturns in the national economy.
The geographic diversity of the loans in the pool and relatively balanced property type exposure serve as key strengths to MSBAM 2015-C24, the top three being retail properties (28.6%), multifamily properties (23.7%), and lodging facilities (16.3%). Of the 29 states in which the properties are located, New York (19.8%), Texas (12.7%), and Maryland (8.6%) have the highest concentrations.
The largest loan in the pool, 535-545 Fifth Avenue in New York City, totals $110 million and comprises 11.8% of the overall pool. The top 10 loans in the pool make 49.5% of the portfolio; this is considered to increase risk because a large portion of the balance would be affected if even one of these loans defaults.