DBRS Confirms All Classes of A10 Term Asset Financing 2014-1, LLC

DBRS, Inc. (DBRS) has today confirmed the following Commercial Mortgage Pass-Through Certificates, Series 2014-1 issued by A10 Term Asset Financing 2013-2, LLC. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at A (sf)
-- Class C at BBB (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

The rating confirmations reflect the continued performance of the pool. The transaction consists of 16 loans secured by 19 traditional commercial real estate assets, including office, multifamily, retail and industrial properties. According to the March 2016 remittance, there has been collateral reduction of 11.3% since issuance, as two loans have been repaid in full and eight properties out of an original 11-property portfolio loan have been re-leased, with proceeds paying down the portfolio loan. The remaining loans benefit from low leverage on a per-unit basis, with the weighted-average debt yield based on the most recently reported net operating income and outstanding trust balance at 9.3%, which is moderately stable, given the pool consists of stabilizing assets.

All of the collateral loans were originated by A10 Capital, LLC (A10). 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’s initial advance is the senior debt component typically used 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. Two loans have experienced partial principal repayment totaling approximately $1.9 million, with proceeds being used to fund the reserve account, which may be used to provide future funding to individual borrowers. The reserve account has a current balance of $8.5 million against total potential future funding obligations of $21.6 million. According to the most recent reporting, a portion of the collateral assets in the subject pool have reached stabilization; however, others continue to perform below the respective stabilization plans.

The transaction is concentrated, as the largest loan in the transaction represents 14.2% of the current pool balance based on the fully funded loan amount. This loan, Oak Creek, which is secured by an office building in Milpitas, California, was recently upsized by an additional $4.4 million over its original fully funded loan balance of $15.2 million to fund the Tenant Improvement/Leasing Commission (TI/LC) package of the newest tenant, Cordis Corporation (Cordis). Cordis, which is wholly owned by Cardinal Health, signed a 128-month lease for 75.1% of the net rentable area at $24 per square foot triple net with 3% annual increases. The lease is guaranteed by Cardinal Health. Cordis will receive eight months’ free rent and a TI/LC package totaling $8.5 million, which will be funded by a combination of fresh borrower equity and the aforementioned loan upsize proceeds. The signing will bring the occupancy rate to 100.0%.

The largest five and ten loans represent 55.2% and 83.5% of the current pool balance based on their fully funded loan amounts, respectively. None of the loans in the pool has an initial maturity date prior to December 1, 2016, and one loan, representing 8.3% of the current pool balance, has completely drawn down its future funding facility. Two additional loans, representing 6.6% of the current pool balance, did not receive future funding components with their respective financings.

The ratings assigned by DBRS contemplate timely payments of distributable interest and, in the case of the Offered Notes other than the Class A-1 and A-2 Notes, ultimate recovery of Deferred Collateralized Note Interest Amounts (inclusive of interest payable thereon at the applicable rate, to the extent permitted by law). The transaction is a standard sequential pay waterfall.

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 methodologies are North American CMBS Rating Methodology (March 2016) and CMBS North American Surveillance (December 2015), which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.