Greenthal Realty Partners has issued its first-ever securitization deal, via GRP/AS Real Estate Asset Trust 2000-1. In a structure that hasn't been seen in the market since 1995, the issue, consisting of nonperforming and subperforming loans, uses a liquidating trust.

"Because the loans are not generating cash, you're depending primarily on the liquidation of the properties or ultimately getting rights to the property and selling it," said Diane Westerback, an analyst to Moody's Investors Service. Moody's rated the $117.5 million Rule 144A transaction in variable-rate class A notes A2.

The total amount of loans in the pool is $145 million, with the difference made up in arrearage. "They securitized the unpaid principal balance of the loans," Westerback said. "If a loan is a year delinquent, the one year of interest is not included in the balance, so that usually is turned into arrearage."

What makes this deal structure unusual is that the interest is paid out quarterly, rather than monthly - mostly due to liquidity concerns.

"You don't know exactly what you're getting each month, but it kind of averages out - predictable over a longer term," Westerback added.

The Greenthal deal also varies from previous nonperforming deals in that it gives a window for the issuer to sell off the loans in the case that some of them may start performing again. In previous deal that had a term of five to seven years, issuers ran into logistical problems selling the loans out of the trust. With Greenthal, a window of one year was created.

"Because of that, if you had a liquidity crisis or any other kind of market upset, where suddenly these loans are not desirable, you have a little bit of a window where you can wait that out," Westerback said, adding that Moody's took a heavy discount on the loans that are expected to perform.

Moody's sees two main credit risks associated with the Greenthal deal. One is the short-term swings in real estate value, which could reduce proceeds fom the liquidation of properties securing the loans. The other is the risk that the servicer will be unable to process the liquidation of properties without delays.

"With a single-A level, we could tolerate significant slippage in a servicer's ability," Westerback said. "They would not have to achieve what their track record indicates they can for these bonds to pay off."

There is another player in the market seriously considering issuing under this structure, though Westerback said it's too early to tell if a trend in the reperforming sector is beginning. The market has seen $11 billion in securitization of subperforming or nonperforming loans since 1995. "Most of the major reperforming players could easily do a deal like this," she added.

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