DBRS Assigns Provisional Ratings to RAIT 2014-FL2 Trust

DBRS has today assigned provisional ratings to the following classes of secured floating-rate notes (the Notes) to be issued by RAIT 2014-FL2 Trust. All trends are Stable.

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

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

The collateral for the transaction consists of 18 newly originated floating-rate mortgages secured by 32 transitional commercial real estate properties totaling $196.1 million. The loans are secured by current cash flowing assets, most of which are in a period of transition with plans to stabilize and improve the asset value. The floating-rate mortgages 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, the index (one-month LIBOR) was modeled at the lower of a DBRS stressed index that corresponded to the remaining fully extended term of the loans and the strike price of the interest rate cap, with the respective contractual loan spread added to determine a stressed interest rate over the loan term. When the cut-off balances were measured against the DBRS stabilized net cash flow and their respective stressed constants, there were 13 loans, representing 74.3% of the pool, with term debt service coverage ratios (DSCRs) below 1.15x, 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 74.2% of the loans having refinance DSCRs below 1.00x. The properties are often transitioning, with potential upside in the cash flow; however, DBRS does not give full credit to the stabilization if there are no holdbacks or if the other loan structural features in place were insufficient to support such treatment.

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 May 2031. 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 Unified Interest Rate Model for U.S. and European Structured Credit, which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.