Oaktree Capital Management is preparing a still-rare securitization of non-performing commercial loans, according to a presale report published by Kroll Bond Rating Agency.
ORES 2014-LV3 is structured as a liquidating trust; the collateral manager will seek to dispose of the assets quickly enough to pay down the balance of the notes before reserves set aside to pay fee deals and interest are depleted.
Two classes of notes will be issued which are entitled to principal and interest payments. However, interest payments can be deferred up to one year, if there are not sufficient funds to make the payment. Kroll has assigned a preliminary BBB- rating to the $258.6 million class A notes; two other tranches, an $83.2 million B class of notes and a $113.9 million equity interest, are unrated.
The collateral consists of 569 loans that are delinquent or have been repossesed, along with a few properties that are performing. The assets have an aggregate unpaid principal balance of $899.3 million and were acquired by Oaktree Capital Management and its affiliates for $455.8 million between the first quarter of 2011 and first quarter of 2014.
In its presale report, Kroll noted that more than half of the assets, or 57%, have been repossessed, which it said is “significantly” above the 8.5% average exposure in the four non-performing transactions that it has rated. “REO [real estate owned] assets may benefit from higher recoveries and faster resolution times than NPLs [non-performing loans], as the costs and time associated with foreclosure have already been incurred, and the cash flows from property operations and/or a sale are not subject to potential interference by distressed borrowers,” the report stated.
The transaction will have an $8.5 million class A interest reserve, $3.0 million class B interest reserve, and $8.5 million of working capital reserve, which will be funded at closing, and replenished on an ongoing basis from trust cash flow, to the extent funds are available.
Wells Fargo Securities is the placement agent.
