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Velocity launches ABS securitizing small-balancer commercial loans

A longtime issuer of small-balance commercial securitizations, Velocity has returned to the asset-backed securities (ABS) market with its 18th deal since 2011 that pools fewer loans, which on average are higher in value and more levered.

The $204.2 million Velocity Commercial Capital Loan Trust 2021-3 (VCC 2021-3) offering is collateralized by 455 small-balance commercial loans secured by mortgages on 517 residential rental and commercial real estate properties.

With an average outstanding principal balance of $448,803, the loans range from $44,135 to $5 million in size. VCC 2021-3 resembles transactions completed earlier this year in terms of size and other deal metrics, although the average loan is somewhat larger. Its appraised LTV is 68.1% compared VCC 2021-2’s 67.3% and VVC 2021-1’s 64.9%, according to Kroll Bond Rating Agency (KBRA) in a recent presale report.

The deal will comprise seven classes of securities divided into 25 subclasses, 15 of which are entitled to principal and interest, seven to only interest, one to any remaining excess cash, another to solely prepayment premiums, and the last is a residual interest, KRBA says.

Velocity’s second 2021 securitization, completed in August, featured Barlcays Bank as structuring lead and Citi as joint co-lead. That $195 million transaction was also divided into seven classes that captured coupons ranging from $1.52% on the $148.3 million AAA portion to 4.92% on a $2.7 million nonrated piece.

A key consideration, KBRA notes, is that the transaction—similar to most deals since 2017—employs a modified pro rate structure for the distribution of principal proceeds, provided a sequential pay trigger event has not occurred. The rating agency adds that this distribution concept can result in periods where subordinated certificates receive principal distributions while more senior ones do not.

“While principal distributions cannot reduce the initial credit enhancement levels on a percentage basis, in the subject transaction dollar credit enhancement is reduced over time, increasing tail risks,” the presale says.

However, the structure includes three mitigating factors, including a mechanism to increase credit enhancement percentages to higher target levels when delinquencies are rising, and the use of excess spread to reimburse realized losses.

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ABS Securitization
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