In a first for the Toorak securitized issuance shelf, the TRK 2021-INV1 is issuing an investor cash flow residential mortgage-backed securities deal.
Collateralized by loans that were underwritten using investor debt-service-coverage ratios (DSCRs), according to the Kroll Bond Rating Agency, the investor cash flow deal consists mostly of fixed-rate mortgages. The fixed-rate mortgages represent 98.2% of the 1,092 loans in the pool.
The $224 million in notes are secured by non-prime rental investment property loans, which Toorak aggregated, according to a statement from Toorak Capital Partners. Morgan Stanley is lead manager on the deal, with Deutsche Bank and KKR Capital Markets acting as co-leads. The residential loans underpinning the notes are a mix of fixed, adjustable rate, fully amortizing and interest-only loans, the company said.
The capital structure uses a senior-subordinate structure, with excess spread.
Under DSCR underwriting, qualification for a loan is based on the ratio of the lower result from a calculation of actual or market-estimated rental income to all property-related expenses, including principal, interest, taxes, insurance, associated dues. Borrowers in the deal have a weighted average (WA) credit score of 722, have a DSCR of 1.39x and a weighted average loan-to-value (LTV) 71.7%, Toorak said.
Other firsts are in the deal, according to KBRA. The transaction is the first non-prime RMBS transaction sponsored by Toorak through the TRK shelf. Mostly small, unrated entities originated the loans in the TRK 2021-INV1 trust, extending the financing through non-traditional income documentation.
While KBRA finds the source of the loans to be a potential negative, the mortgages in the trust have significant equity, and modest leverage. None of the loans possessed known subordinate financing when they were originated. Combined, those two characteristics lend the notes a “margin of safety, KBRA said.
Several other aspects of the collateral pool potentially strengthen the deal. The pool is large, and just nine of the loans have a current balance of $1 million or greater, overall reducing tail risk exposures over the life of the transaction, KBRA said.
KBRA is expected to assign a ‘AAA’ rating to the $147 million A-1 class; a ‘AA’ rating to the $14 million A-2 class, and an ‘A’ rating to the $23 million A-3 class.
