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Silverpeak Argentic's next CRE CLO is more highly leveraged

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Silverpeak Argentic's second securitization of short-term mortgages on transitional commercial property is slightly less concentrated than its initial deal, but also more highly leveraged.

The $597 million AREIT 2018-CRE2 is backed by 22 loans, up from 19 loans for the inaugural commercial real estate collateralized loan obligation the sponsor completed in February. But the new deal is still slightly more concentrated than the average of other recent CRE CLOs rated by Kroll Bond Rating Agency over the past 12 months, which ranged from 19 to 54.

The initial mortgage collateral is “highly leveraged,” with a weighted average loan-to-value ratio, as measured by Kroll, of 128.1%. That’s above the KLTV of Silverpeak Argentic’s previous deal of 124.9%. It also higher than the 135.3% average of the 18 CRE CLOs that Kroll has rated over the past 12 months.

"Higher leverage implies lower borrower equity levels, greater default probability, and higher overall loss severity should a default occur," Kroll notes in its presale report.

Moody’s Investors Service puts the LTV on Silverpeak Argentic’s latest deal a bit lower, at 125%.

Like the sponsor’s prior transaction, this one is static, no new assets will be acquired after it closes. The only exceptions are “companion” loans secured by the same properties as loans already held in the portfolio; for the first two years, the trust can use principal repayments to acquire these. These purchases can only be made if the performance collateral and of the overall transaction meet certain criteria, however.

Just over half of the loans (50.3% of the collateral balance), finance multifamily properties; the remaining property type exposure consists of office (18.2%), lodging (15.5%), retail (6.6%), mixed-use (4.8%), and industrial (4.5%).

The loans were all originated by AREIT, a privately held real estate investment trust and an affiliate of the issuer. AREIT is a wholly owned subsidiary of Silverpeak Argentic that has originated over $4.2 billion of loans.

Loan proceeds for a majority of the loans in the pool were used to acquire properties (17 loans, 75.3%), while proceeds for the remaining loans were used to refinance existing debt (five loans, 24.7%).

Both Kroll and Moody’s expect to assign triple-A ratings to the senior tranche of securities to be issued in the transaction. There are also six subordinate tranches of notes with ratings ranging from AAA to B- from Kroll alone.

The underwriters are Wells Fargo Securities, Goldman Sachs and Morgan Stanley.

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