UBS and Bank of America Merrill Lynch are marketing $708 million of bonds backed by 42 mortgage loans that are secured on 57 properties, according to Kroll Bond Ratings.
The deal, called BACM 2015-UBS7, is less highly leveraged than the last 21 CMBS conduits rated by Kroll; it has an average loan-to-value ratio of 97.8%, compared with 103.3% for the last 21 Kroll-rated deals.
As has been the case in several conduits issued since May, the lower overal debt level in BACM 2015-UBS7 is helped by the inclusion of two large, relatively high-quality loans with investment grade credit characteristics. These loans have lower leverage than typical conduit loans, good structure, experienced sponsorship, and are secured by good quality properties in primary markets.
In this case, the two loans are Charles River Plaza North (single largest, 9.6%) and 651 Brannan Street (6th largest, 5.9%). Both loans have credit characteristics commensurate with a ‘BBB-’ rated obligation when analyzed on a stand-alone basis, according to Kroll.
Charles River Plaza North is secured by a single-tenant medical office and laboratory complex located in the Beacon Hill section of the Boston central business district and 651 Brannan Street is secured by a office building located in San Francisco’s central business district.
However, even without the two loans, the conduit'sleverage is still relatively, low at 103.3%. The non-investment grade ortion of the last 10 securitizations with investment grade loan exposures rated by Krol, had an average LTV of 106%.
Another credit strength is the pool’s high exposure to primary market properties, at 56% compared with an average 47.5% exposure in the last 21 CMBS conduits Kroll rated. Primary markets, and to a lesser extent secondary markets, have diverse economies and favorable demographics that can better withstand fluctuations and downturns in the national economy compared with tertiary markets.
Kroll has assigned preliminary ‘AAA’ ratings to $530 million worth of notes to be issued by the trust that have 30% credit enhancement. These super senior notes will be offered over four tranches that are all due on September 2048.
The trust will also offer $50 million of ‘AAA’ rated bonds structured with 23.37% credit enhancement. At the subordinate level, the trust will offer bonds rated from ‘A-’ to ‘B-’.
More than half of the transaction balance (27 loans, 60.4%) are loans that pay only interest and no principalfor at least a portion of their 10-year terms. Most of the loans (35 loans, 93.5%) were used to refinance existing debt, while the proceeds from seven loans (6.5%) were used for property acquisitions.