DBRS Finalizes Provisional Ratings on RAIT 2015-FL5 Trust

DBRS, Inc. (DBRS) has today finalized its provisional ratings on the following classes of secured floating-rate notes (the Notes) to be issued by RAIT 2015-FL5 Trust. All trends are Stable.

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

Classes A, B and C have been privately placed, and Class D has been initially retained by an affiliate of the Issuer but is expected to be privately placed in the near term.

Classes E and F are non-offered classes and were retained by an affiliate of the Issuer.

With respect to the deferrable notes (Class C, Class D, Class E and Class F), to the extent that interest proceeds are not sufficient on a given payment date to pay accrued interest, interest will not be due and payable on the payment date and will instead be deferred and capitalized. The ratings assigned by DBRS contemplate the timely payments of distributable interest and, in the case of deferred interest notes, the ultimate recovery of deferred interest (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law).

The collateral for the transaction consists of 31 recently originated (or soon to be originated) floating-rate mortgages secured by 35 transitional commercial real estate properties totaling $347.4 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. Two loans, representing 12.4% of the pool, have a future funding component. As of the cut-off date, the aggregate remaining future funding participations totaled $9.6 million and ranged from $2.6 million to $7.0 million. The vast majority of these future funding participations will be utilized by the borrowers to fund property renovations and cover leasing costs.

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. Because of the floating-rate nature of the loans, the index (one-month LIBOR) was modeled at the lower of a DBRS stressed rate 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 In-Place net cash flow (NCF) and their respective stressed constants, there were 24 loans, representing 78.7% of the pool, with term debt service coverage ratios (DSCR) 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 19 loans, or 64.1% of the loans, having refinance DSCRs below 1.00x relative to the DBRS stabilized NCF. 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 other loan structural features in place were insufficient to support such treatment. Furthermore, even with structure provided, DBRS generally does not assume the assets to stabilize above market levels.

One loan, Vista Shops, representing a total of 2.6% of the pool, has not closed as of the publication date of the DBRS rating report and may not close prior to the closing of this transaction. If the loan does not close prior to the closing date, a deposit will be made to the unused proceeds account in an amount equal to the expected initial principal balance of the loan. To the extent that this loan is not purchased within 90 days of securitization closing, the unused proceeds will pay down the Notes in an amount necessary to cause the credit enhancement level for each class to equal the targeted credit enhancement, with all remaining proceeds distributed to the preferred shares. DBRS believes that the increase in subordination from the current levels to the adjusted levels appropriately accounts for the possible deterioration in both credit quality and diversity profile if the loan does not close within 90 days of securitization.

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 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.

The applicable methodology is North American CMBS Rating Methodology, which can be found on our website under Methodologies.

With regard to due diligence services, DBRS was provided with the Form ABS Due Diligence-15E (Form-15E), which contains the description of the information that the third party reviewed in conducting the due diligence services and a summary of the findings and conclusions. While DBRS did not require due diligence services outlined in Form-15E, DBRS did use the Data File outlined in the Independent Accountant’s Report in its analysis to determine the ratings.

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