DBRS Confirms Jefferies Military Housing Trust, Series 2010-XLII

DBRS has today confirmed the following class of Jefferies Military Housing Trust, Series 2010-XLII, with a Stable trend.

HUNTER Project Certificates Series 2010A at B (sf)

The securitization consists of one $90 million loan collateralized by the residual cash flow interests from 12 U.S. military housing projects (the original property) located on 11 bases, along with the property management and asset management fees from eight of the 12 projects. In addition to the $90 million trust loan, there is also a total of $833 million in senior-securitized loans and $451 million of government-direct loans outstanding that are secured by the leasehold interests in the original 12 projects. The senior-securitized loans and the government-direct loans are senior in priority to the transaction’s $90 million underlying loan. The loan was originated in October 2010 with a scheduled maturity in October 2030 and a final maturity date in October 2045. The trust loan is interest-only for the first five years through October 2015.

Following the initial review by DBRS, the sponsor pledged developer fees, developer overhead fees and residual interests from an additional 15 military housing projects (the additional collateral). As nine of these projects were in the construction phase at close and given the limited time for review, DBRS did not conduct analysis for, or give credit to, the additional collateral prior to the transaction’s closing or for the purposes of this surveillance review. DBRS considers the additional collateral to have no impact on this transaction and in no way does it detract from the transaction’s overall credit quality. As the new projects complete construction and ultimately stabilize, DBRS may be asked by the sponsor or originator to review the transaction inclusive of the additional collateral to determine the resulting impact on the credit of the transaction.

The rating confirmation reflects the stable performance of the portfolio in 2011. DBRS calculated a debt service coverage ratio (DSCR) for the trust loan of 1.47 times (x) for the trailing 12 month (T-12) period ending December 22, 2011. This figure excludes the additional collateral pledged shortly before the transaction’s closing; including that income results in a DSCR for the same period of 2.86x. The projects comprising the original property portfolio were well occupied at October 2011, with a combined occupancy rate of 96.7%. The additional collateral portfolio was 94.1% occupied for the same period. At issuance, one of the projects in the original property portfolio, Nellis Air Force Base (AFB), was scheduled for completion in December 2010. The servicer confirms that the project was complete as of June 15, 2011. There were eight projects under construction in the additional collateral pool at issuance; the servicer confirms that seven of those are scheduled to be complete as of February 28, 2012, with the remaining project, BLB-Langley AFB (BLB), scheduled for completion in September 2014.

In addition to the stable DSCR and occupancy statistics for the underlying properties, DBRS also notes that the transaction benefits from the experience of the loan sponsors and property management with the specialized nature of the collateral, the stable source of revenue provided by the Basic Allowance for Housing (BAH) from service member occupants, and structural features of the transaction designed to benefit the Series 2010A certificate.

Cash traps are present at both the loan level and the Grantor Trust level. The Series 2010B certificate is fully subordinated to the Series 2010A note, and in the event that the loan’s DSCR is less than 1.0x, funds otherwise payable to the Series 2010B certificate will be trapped for the benefit of the Series 2010A certificate. In addition, a debt service reserve in the amount of $5.625 million was established at issuance; this figure amounts to approximately six months of debt service on the trust loan. The release covenants require that the DSCR on the loan, inclusive of all senior debt service obligations, be above 2.0x for six consecutive months prior to the BLB project completion date, or the immediately preceding six months (in aggregate) after the BLB completion date. The BLB project comprises three Air Force Base communities in Shreveport, Louisiana, Washington D.C. and Langley, Virginia. The Shreveport and Langley properties are scheduled for completion in January 2012 and the Washington D.C. property is scheduled for completion in September 2014.

Notes:
All figures are in U.S. dollars unless otherwise noted.

All classes are privately placed pursuant to Rule 144A.

The applicable methodologies are CMBS Rating Methodology and CMBS North American Surveillance Methodology, which can be found on our website under Methodologies.