DBRS Finalizes Ratings on RAIT 2013-FL1 Trust

DBRS has today finalized the provisional ratings on the following classes of notes issued by RAIT 2013-FL1 Trust. All trends are Stable.

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class BC at A (low) (sf)

All classes have been privately placed pursuant to Rule 144A.

The Class BC Combination Notes are effectively exchangeable notes that provide the noteholders with the option to exchange Class B notes and Class C notes for Class BC notes and vice versa. If exchanged, the Class BC noteholder will receive proportional payments that it otherwise would have received if separately owning the Class B and Class C notes.

The collateral for the transaction consists of newly originated floating-rate mortgages (nine loans, $70.8 million) secured by ten transitional commercial real estate properties (the Initial Loans) and additional mortgages, with a total of $64.2 million to be contributed in the 180 days post-closing (the Additional or Ramp-Up Loans) to combine for a total of $135 million of loans. The loans are secured by current cash flowing assets in a period of transition, with viable plans to stabilize and improve the asset value. The Initial Loans were analyzed to determine the probability of loan default over the term of the loan and its refinance risk at maturity, based on a fully extended loan term. Due to the floating-rate nature of the loans, DBRS applied a stress to the base rate (one-month LIBOR) that corresponded to the remaining fully extended term of the loans and added the respective contractual loan spread to determine a stressed constant over the loan term. When the cut-off balances were measured against the DBRS stabilized net cash flow (NCF) and their respective stressed constants, there were seven loans, representing 84.7% of the pool, with term DSCRs below 1.15 times (x), a threshold indicative of a higher likelihood of term default. Additionally, to assess refinance risk, DBRS applied its refinance constants to the balloon amounts, resulting in 60.4% of the pool, based on the Trust Balance, having refinance DSCRs below 1.00x. The relatively low asset count of the initial loans enabled DBRS to analyze each one in depth and perform site inspections on all of the assets within the pool. The properties are often transitioning, with potential upside in the cash flow; however, DBRS does not give any credit to the stabilization if there are no holdbacks or other loan structural features in place to support such treatment.

The Ramp-Up Loans were sized with an expectation that the worst-case parameters, according to the Eligibility Criteria outlined in the Indenture, would materialize. The worst-case sizing was completed in order to avoid future ratings volatility associated with the Ramp-Up Loans. To construct a worst-case scenario, DBRS assumes the highest concentrations are reached, the most volatile property types allowed are contributed and that loans are originated based on the minimum credit metrics. Additionally, in order to provide further assurance as to the ratings during the ramp-up period, the Issuer will seek a Rating Agency Confirmation (RAC) for each Ramp-Up Loan contributed. If the Issuer does not use the full amount of proceeds available during the ramp-up, the proceeds are distributed to the noteholders and paid in accordance with the waterfall.

The transaction is a sequential-pay structure.

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 January 2029. The ratings assigned to the notes by DBRS are 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.

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

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.

The applicable methodologies are CMBS Rating Methodology and the Unified Interest Rate Model for U.S. and European Structured Credit, which can be found on our website under Methodologies.