DBRS Confirms All Classes of A10 Term Asset Financing 2015-1, LLC

DBRS Limited (DBRS) has today confirmed the following ratings on the Commercial Mortgage Pass-Through Certificates, Series 2015-1 issued by A10 Term Asset Financing 2015-1, LLC:

-- 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)

All trends are Stable. Classes E and F are non-offered classes.

The rating confirmations reflect the continued performance of the pool since issuance in April 2015. The transaction consists of 26 loans secured by 26 transitional commercial real estate assets, including office, multifamily, retail and industrial properties. According to the March 2016 remittance, there has been collateral reduction of 10.3% since issuance as five loans have been repaid in full since issuance and proceeds were used to pay down their respective loan balances. According to the servicer’s updates, most of the respective borrowers’ stabilization plans are on track with the timelines provided at issuance. As of the March 2016 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist. The largest loan in the pool based on the fully funded amount is discussed in detail below.

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. Five loans have experienced full principal repayment totaling approximately $36.8 million and proceeds were used to pay the outstanding Class A-1 bond and to fund the reserve account, which may be used to provide future funding to individual borrowers. The reserve account has a current balance of $27.6 million against total potential future funding obligations of $45.0 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 10.7% of the current pool balance based on the fully funded loan amount. This loan, 2280 N Greenville, which is secured by an office building in Richardson, Texas, was recently upsized by an additional $5.0 million over its original fully funded loan balance of $18.8 million to fund the tenant improvement/leasing commission (TI/LC) package of the newest tenant, Geico. The tenant signed a 152-month lease for 100.0% of the net rentable area at $13.75 per square foot (psf) triple net with $0.38 psf annual increases. The lease commenced in January 2016 and Geico will receive eight months’ free rent and a TI/LC package totaling $14.3 million, which will be funded by a combination of fresh borrower equity and the aforementioned loan upsize proceeds. In addition, the sponsor has achieved its business plan to convert the adjacent warehouse/industrial building into a covered parking structure to adequately accommodate the parking needs of Geico.

The largest five and ten loans represent 41.0% and 66.4% of the current pool balance based on their fully funded loan amounts, respectively. None of the loans in the pool have an initial maturity date prior to August 1, 2016, and four remaining loans, representing 14.1% of the current pool balance, did not receive future funding components with their respective financings.

DBRS’s ratings 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.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are 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.

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.