DBRS Confirms Ratings of BAMLL-DB 2012-OSI Trust

DBRS has today confirmed the ratings of BAMLL-DB 2012 OSI Trust, Commercial Mortgage Pass-Through Certificates, Series 2012-OSI, as follows:

-- Class A-1 at AAA (sf)
-- Class A-2-FX at AAA (sf)
-- Class A-2-FL at AAA (sf)
-- Class B at AA (sf)
-- Class C at A (sf)
-- Class D at BBB (sf)

All trends are Stable.

The collateral consists of a $317.6 million first mortgage loan secured by 261 full-service restaurants located in 34 states that are subject to one Master Lease. The borrower for the transaction is New Private Restaurant Properties, LLC and the Master Lease Guarantor is OSI Restaurant Partners, LLC (OSI). The Master Lease has a 15-year term, with rental rates starting at $33.00 per square foot (psf) triple net. The rental rate automatically increases by 10% in Year 6 and Year 11 of the lease.

The first mortgage loan features both a fixed- and floating-rate component, with the floating-rate component currently representing 15.3% of the total first mortgage loan balance as of the March 2013 remittance. In addition to the first mortgage, there is a total of $175.2 million of mezzanine debt that is bi-furcated into two tranches.

The transaction is a sequential-pay structure; however, the floating-rate component, Class A-2-FL, is fully pre-payable with no penalty as 12 months have elapsed since closing. With the August 2012 remittance, unscheduled principal of $107,750 was received and applied to the trust. DBRS is awaiting further clarification from the servicer with regard to the pre-payment and will look to provide detail in the upcoming March 2013 Monthly Surveillance Report of this transaction.

The 261 restaurants forming the collateral for the trust consist of eight different restaurant concepts. The most prevalent concepts in the portfolio are Outback Steakhouse (Outback) and Carrabba’s Italian Grill (Carrabba’s), which account for 199 and 47 assets, respectively. The remaining concepts are Cheeseburger in Paradise, Lee Roy Selmon’s, Roy’s Hawaiian Fusion, Bonefish Grill, Fleming’s and Sterling’s Bistro. The Cheeseburger in Paradise, Lee Roy Selmon’s and Sterling’s Bistro assets, which combined account for ten properties in the trust, are third-party owned and are not owned or operated by OSI. The majority of the properties are located in in-fill suburban markets, with good visibility and access from major thoroughfares.

According to YE2012 reporting provided for the five restaurant concepts owned and operated by OSI, these 251 restaurants posted weighted-average sales growth of 4.8% and weighted-average EBITDAR growth of 8.7% over YE2011 figures. The results were influenced by the performances of Outback and Carrabba’s, which reported sales growth of 5.6% and 1.7%, respectively, and EBITDAR growth of 8.6% and 9.0%, respectively. The EBITDAR-to-rent ratio for these five restaurant concepts was 3.98 times (x) at YE2012, compared with 3.66x at YE2011. At issuance, the ratio for all eight concepts was 3.49x.While performance of the loan is primarily measured based on the EBITDAR-to-rent ratio, the servicer calculated a YE2012 debt service coverage ratio (DSCR) of 2.36x on the first mortgage loan and a whole-loan DSCR of 1.84x.

As of the March 2013 remittance report, no properties have been released from the trust and one property, an Outback in Las Vegas, Nevada, has gone dark. According to the Go Dark provisions of the Master Lease, up to 14% of the total property count can go dark before the borrower has to release properties at 115% of the allocated loan balance. According to the loan provisions, up to 37 properties can go dark before the borrower will be forced to release properties. As OSI continues to make rental payments on the property per the Master Lease agreement, cash flow has not been negatively affected.

For the purposes of this review, DBRS applied a haircut (consistent with the haircut used at issuance) to the YE2012 net cash flow. DBRS also applied an additional debt penalty, consistent with the additional debt penalty used at issuance. Both actions were taken to capture the impact of any short-term cash flow volatility over the near term, deriving a stable first mortgage DBRS DSCR of 1.59x. The DBRS net cash flow figure implies a loan-to-value ratio of 67.8%, based on a cap rate of 10.00%, which is considered conservative, given the cash flow stability provided by the Master Lease and location of the majority of the assets in suburban areas.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The March 2013 Monthly CMBS Surveillance Report for this transaction will be published shortly. If you are interested in receiving this report, contact us at info@dbrs.com.

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

All classes are privately placed pursuant to Rule 144a.

These ratings are endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American Surveillance Methodology (November 2012), which can be found on our website under Methodologies.