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Prime Finance Partners returns with 1st CRE CLO since 2017

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Prime Finance Partners is returning to the securitization market for the first time since 2017 to finance lending on commercial properties being rehabbed or converted to a new use.

The initial collateral for the transaction, PFP 2019-1, consists of 35 floating-rate mortgages secured by 39 transitional properties totaling $764.2 million. Of these loans, 29 have remaining future funding participations that may be acquired by the securitization trust using proceeds from principal repayment, for a total of $109.9 million.

If the acquisition by the Issuer of all or a portion of a future funding participation results in a downgrade of the ratings by DBRS, then PFP Holding Company VI, will be required to promptly repurchase such participation from the trust.

The deal is concentrated by property type with 15 loans, representing 44.7% of the mortgage loan cutoff date balance, secured by multifamily properties. Four of these loans, comprising 8.9% of the trust balance, are backed by student housing properties, which often exhibit higher cash flow volatility than traditional multifamily properties.

However, the largest loan, representing 9.3% of the initial balance of the collateral, is a $71 million portion of a $91.6 million loan on the Ross Tower office building in Dallas. The trust’s holding represents the A-1 note of the whole loan; there is also an $51.5 million Note A-2-1 held by Global Investment Fund I on behalf of TRE ACR Portfolio, a subsidiary of American Family Life Assurance Company of Columbus (AFLAC) and a $10 million Note A-2-2 held by AFLAC in the maximum principal amount of up to $10 million.

A co-lender agreement provides that each holder of the Ross Tower notes is responsible for funding its pro rata share of future funding obligations. If any holder of the notes is unable to do so, the other holders may advance all or any part of the deficiency and the entire interest of the defaulting holder will be subordinate to the right of the advancing holder. The administrative agent also has the right to require any defaulting holder to sell its interest in the Ross Tower loan to a qualified institution or one or more of the non-defaulting holders of the Ross Tower notes.

One loan in the pool, Riverside Office Portfolio, has mezzanine debt. Riverside Office Portfolio, representing 4.4% of the initial pool balance, has a $2.5 million mezzanine loan. Future additional secured debt is not permitted for any of the loans in the pool.

Among other considerations, two loans, comprising 11.5% of the total pool balance, are secured by properties deemed by DBRS to be above average in quality. Six additional loans, totaling 21.8% of the total pool balance, are secured by properties identified as having average (+) quality. Equally as important, none of the loan collateral was deemed by DBRS to be average (-), below average or poor property quality.

DBRS expects to assign an AAA rating to the Class A notes, which benefit from 44% subordination. That’s an increase from the 41% subordination on the comparable tranche of a deal that PFP completed in September 2017.

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