DBRS Assigns Provisional Ratings to ReadyCap Commercial Mortgage Trust 2014-1

DBRS has today assigned provisional ratings to the following classes of ReadyCap Commercial Mortgage Trust 2014-1 Commercial Mortgage Pass-Through Certificates (the Certificates), to be issued by the ReadyCap Commercial Mortgage Trust 2014-1. The trends are Stable.

-- Class A at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (sf)
-- Class D at A (high) (sf)
-- Class E at BBB (low) (sf)
-- Class F at BB (low) (sf)
-- Class IO-A at AAA (sf)

Classes A, B and C represent the offered certificates and will be privately placed pursuant to Rule 144A. The IO-A and IO-B balances are notional. DBRS ratings on IO certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO certificate’s position within the transaction payment waterfall when determining the appropriate rating. Classes D, E, F and G represent the non-offered certificates and will be retained by the issuer.

The collateral consists of 71 fixed- and floating-rate loans secured by 75 commercial and multifamily properties, for a total transaction balance of $181,822,204. The DBRS sample included 13 loans, representing 43.6% of the pool. The pool is relatively diverse based on loan size, with a concentration profile equivalent to that of a pool of 40 equal-sized loans. Increased pool diversity helps to insulate the higher-rated classes from event risk.

The pool has a relatively high concentration of properties located in urban markets, given the small balance of the loans. Eleven loans, representing 12.4% of the pool, are located in urban markets, including one loan in the top ten. Properties located in urban markets typically benefit from higher levels of liquidity in times of stress compared to smaller markets. Term default risk is moderate, as indicated by a relatively strong DBRS Term DSCR of 1.42x. In addition, 15 loans, representing 23.6% of the pool, have a DBRS Term DSCR in excess of 1.50x, including three of the largest ten loans.

The pool has an average balance of $2.6 million, significantly lower than the average loan balance for CMBS 2.0 deals of approximately $18.1 million. Historically, loans with smaller balances have experienced significantly higher loss severities in the event of default than larger loans. DBRS modeled all loans with a higher associated loss severity correlated to loan size. Loans with balances less than $5 million, which represent 62.5% of the pool, were treated most punitively. The sponsors are generally less sophisticated operators of commercial real estate with limited real estate portfolios and experience. Across the pool, the sponsors reported an approximate average net worth of $7.3 million and average liquidity of $641,000. Twenty-four loans, representing 28.2% of the pool, have recourse to the sponsor. While it is generally difficult to quantify the impact of recourse, there is an increase in the loan’s POD for sponsors that do not give 100% recourse. None of the sponsors have declared bankruptcy in the past ten years.

The deal consists of seven properties, totalling 21.8% of the pool, leased to single tenants or predominantly single-tenant, which have been found to have higher losses in the event of default. DBRS modeled single-tenant properties with a higher expected loss compared with multi-tenant properties. Additionally, the largest loan secured by a single-tenant property is an industrial property that could be sub-divided and re-leased if necessary. The tenant’s lease extends 19 months beyond the loan term. Overall, the single-tenant properties are expected to amortize 17.3% over the loan term.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets. All classes 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 applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.