Ready Capital Corp, a mortgage real estate investment trust (REIT) is sponsoring a $648.5 million securitization of revenue from a pool of floating-rate mortgage loans on transitional properties.
The collateral pool consists of 35 loans financing 59 collateral properties, according to a pre-sale report from DBRS Morningstar. In aggregate, the loans have an aggregate $178.9 million of pari passu debt, $15.7 million of subordinate junior participations, $90.2 million in unfunded future funding commitment of the future funding participations, and $634,738 of unfunded junior participations.
J.P. Morgan Securities is a structuring agent for the deal, which is slated to issue nine classes of notes. DBRS is slated to rate eight of the tranches of notes.
DBRS cited several strengths for the Ready Capital's credit prospects. For one, Ready Capital is a REIT externally managed by Waterfall Asset Management, a New York City-based, SEC-registered investment advisor. DBRS cited the company's strong origination practices, its substantial experience in originating loans and its track record in managing commercial real estate properties, among other factors.
Multifamily properties account for the vast majority of the initial pool balance, at 86.2%, DBRS said, which is a plus because multifamily properties typically have lower default rates than other CMBS property types, the rating agency said. Another major characteristic of the underlying collateral is that 82.6% of the pool balance represents acquisition financing, the company said.
In yet another respect a majority of the loans, 74.1%, were originated in 2022 or later. Fully extended, the pool of loans has a weighted average (WA) remaining term of 40 months. This should provide the sponsor with enough time to execute their respective business plans without risk of imminent maturity, DBRS said.
Yet some credit risks do exist in the portfolio, according to the rating agency. Leverage is elevated, for one. Based on initial pool balances, the overall DBRS-Morningstar weighted average debt service coverage ratio is 0.59x, while the loan-to-value ratio is 77.0%.
All of the loans are floating rate, but 34 out of 35 of them are interest-only throughout the initial loan term. This could create interest risk should rates continue to increase.
DBRS expects to assign ratings of 'AAA' to the class A and A-S notes; 'AA' to the class B notes; and 'A' to the class C notes. Further down the deal structure, the rating agency expects to assign 'BBB' to classes D and E notes; 'BB' to the class F notes; and 'B' to the class G notes.
