DBRS Confirms All Classes of A10 Securitization 2012-1, LLC

DBRS, Inc. (DBRS) has today confirmed all classes of Senior Subordinated Fixed Rate Notes issued by A10 Securitization 2012-1, LLC as follows:

-- Class A at AAA (sf)
-- Class B at A (high) (sf)
-- Class C at BBB (high) (sf)
-- Class D at BBB (sf)

All trends are Stable.

The rating confirmations reflect the increased credit enhancement to the transaction as a result of successful loan repayment, as well as the stable performance of the remaining loans in the transaction. Since the transaction closed in April 2012, there has been collateral reduction of 87.1% as a result of successful loan repayment. There are five loans remaining in the pool out of the original loan count of 36, which are secured by traditional commercial real estate, including retail and office. Credit enhancement to the investment-grade-rated notes has increased between 9.1% and 10.8% since issuance. As of the May 2015 reporting period, there are no delinquent loans.

All of the collateral loans were originated by A10 Capital, LLC (A10 Capital). A10 specializes in mini-perm loans, which typically have two- to five-year terms and are used to finance properties until they are fully stabilized. The borrowers are typically new equity sponsors of fairly well-positioned assets within their respective markets. A10 Capital’s initial advance is the senior debt component typically for the purchase of a real estate-owned acquisition or discounted payoff loans. Most loans are structured with three-year terms and include built-in extensions and future funding facilities meant to aid in property stabilization, both of which are at the lender’s sole discretion.

The largest loan remaining in the transaction, which represents 28.0% of the current pool balance and 38.6% of the fully funded pool balance has yet to stabilize. The Titan Building loan is secured by a Class B office property in northeastern San Antonio, Texas, just inside the I-410 Loop. As of YE2014, the property was 47.6% occupied, a slight improvement from 43.0% in the previous year. The subject has continued to struggle to gain leasing momentum despite the fact that the loan has an outstanding future funding component of approximately $2.4 million, which is earmarked for TIs and LCs on future leases. The loan originally matured in November 2013 but was extended by two years after the borrower placed $400,000 into a TI/LC reserve and agreed to monthly cash flow sweeps of 50%. The subject is currently operating well below market, as according to CoStar, Class B office properties within San Antonio’s Northeastern submarket report an availability rate of 6.6%. The loan does benefit from low leverage as its current loan psf is $30 and the fully funded loan psf is $48. In comparison, the asset was reappraised in November 2013 on an as-is basis at $10.4 million ($79 psf).

The ratings assigned by DBRS contemplate timely payments of distributable interest and, in the case of the Senior Subordinated Fixed Rate Notes, other than the Class A Notes, ultimate recovery of Deferred Note Interest Amounts (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law). The transaction currently is paying pro rata to all classes, including the subordinate Classes E and F. As such, the credit support in terms of percent of pool is expected to remain constant with the actual dollar balances available to absorb losses decreasing. This structural feature will most likely cap future ratings improvements even if performance remains stable.

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.

All classes are privately placed pursuant to Rule 144A.

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