STWD 2021-FL2 is pricing a $1.27 billion managed commercial real estate commercial loan obligation that allows the issuer to reinvest principal proceeds. The sponsor can also carry out significant modifications to performing loans.
The deal is initially collateralized by 24 whole loans. After an initial 24-month reinvestment period ends, principal proceeds can be reinvested — either for six months or when $127.5 million of the initial pool balance is reinvested, whichever is sooner. The reinvestment proceeds can be applied to mortgage assets or to acquire funded companion participations, according to a Kroll Bond Rating Agency assessment.
The CLO will also issue preferred shares that issue only residual interest and principal payments, according to Moody’s Investors Service.
Among the deal’s credit strengths is an effective note protection test on the Class E notes, which will act as a cushion to the rated notes.
Another strength is the diversification in the portfolio, according to Moody’s. Multifamily, self-storage, industrial and office properties provide collateralization to 90.8% of the pool.
Moody’s also noted that the deal has no long-dated assets, reducing the chance that the deal’s manager, STWD Investment Management, might ever have to liquidate assets close to the maturity date of the transaction’s notes.
KBRA also noted that the deal sponsor, SPT Real Estate Capital, can make meaningful loan modifications on up to four performing loans. It can increase loan balances, change loan maturity dates, incur additional debt that is on par with or subordinate to the loan being modified, and lower loan coupons, according to KBRA.
The $669.3 million note class, the most senior in the deal, received ratings of ‘AAA’ from both KBRA and Moody’s. KBRA rated the $154 million class ‘AAA’; the $79 million class was rated ‘AA-‘; and the $81 million note class received an ‘A-‘ rating.
The rest of the notes in the deal received ‘BBB’ through ‘B-‘ ratings from KBRA.
