DBRS Assigns Provisional Rating to SMA, Series 2012-LV1

DBRS has today assigned a provisional rating of BBB (low) (sf) to the Class A notes to be issued by SMA Issuer I LLC, SMA Issuer II LLC and their subsidiaries (SMA, Series 2012-LV1). The trend is Stable.

The transaction is a liquidating vehicle with the Class A rated notes secured by 12 performing and non-performing commercial mortgage loans secured by 13 properties, as well as one REO property. Collateral for the notes consists of all of the assets (including whole loans and the REO property) and property owned by the issuers – SMA Issuer I and SMA Issuer II – and any of the subsequently formed subsidiary entities. The loans are all secured by a mix of traditional commercial real estate properties, including multifamily, retail, hotel and office, in addition to non-traditional commercial real estate including a senior living facility, infill urban land and a completed condominium development. A joint venture formed by affiliates of Square Mile Capital Management LLC and affiliates of Invesco Advisors, Inc., purchased the collateral from Bank of America, N.A. between October 2011 and September 2012 in three separate transactions for a total acquisition price of $262.0 million. Proceeds from the assets in the form of interest payments, cash flow from the sale of REO properties (including rental income from REO properties subject to operating leases) and principal payments will generally be applied in a manner that protects the Class A noteholders by limiting the distributions to the sponsors while extending the duration to the extent the Class A rated notes meet certain deleveraging tests and debt yield hurdles relating to the underlying portfolio of loans and REO properties.

With a total acquisition basis of $262.0 million financed by $181.6 million of the Class A rated notes, the sponsors retain a significant $79.2 million investment in the collateral, implying 31% enhancement to the Class A rated notes.

The pool is concentrated, as there are only 14 properties, including the REO. The relatively low asset count enabled DBRS to analyze each one in depth and perform site inspections on all of the assets within the pool. Step II of the NPL model, the cash flow stress test, uses a Monte Carlo analysis that includes a 40% correlation factor at the BBB (low) (sf) rating category on the timing and loss severity inputs. DBRS believes that this part of the model adequately captures asset size concentration risk.

DBRS applied its Rating North American Commercial Real Estate Non-Performing Loan Liquidating Trusts methodology in conjunction with the CMBS Rating Methodology to this transaction. DBRS takes a two-step approach to rating non-performing loan liquidating trusts, with the first step establishing a maximum proceeds level allowed at a given rating category based on the recoverable value of the underlying assets and the second step consisting of a cash flow model.

The DBRS rating addresses the likelihood of timely receipt of interest with contemplation of deferral as allowed for in the transaction documents and the ultimate payment of principal and interest (including any previously deferred) by the DBRS Rated Final Payment Date defined as August 20, 2025. The rating assigned to the Class A notes by DBRS is based exclusively on the credit provided by the transaction structure and underlying trust assets. The notes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

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

Class A is privately placed pursuant to Rule 144a.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Related Research, or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology, Rating North American Commercial Real Estate Non-Performing Loan Liquidating Trusts, and the Unified Interest Rate Model for U.S. and European Structured Credit, which can be found on our website under Methodologies.