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

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

-- Class A-1 Senior Fixed Rate Notes at AAA (sf)
-- Class A-2 Senior Fixed Rate Notes at AAA (sf)
-- Class B Senior Subordinated Fixed Rate Notes at A (sf)
-- Class C Senior Subordinated Fixed Rate Notes at BBB (sf)
-- Class D Senior Subordinated Fixed Rate Notes at BBB (low) (sf)
-- Class E Non-Offered Fixed Rate Notes at BB (sf)
-- Class F Non-Offered Fixed Rate Notes at B (sf)

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

The rating confirmations reflect the overall stable performance of the pool and the increased credit support to the bonds as a result of successful loan repayment. The transaction consists of 17 loans secured by 17 transitional commercial real estate assets, including office, retail, multifamily and industrial properties. According to the April 2017 remittance, there has been collateral reduction of 39.6% since issuance, as 14 loans have left the trust, contributing to a principal paydown of $90.7 million. In the last 12 months, nine loans have repaid from the trust. As of the April 2017 remittance, there are no loans in special servicing and no loans on the servicer’s watchlist.

Most loans were originally 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 reserve account has a current balance of $9.5 million against total potential future funding obligations of $14.4 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 their respective stabilization plans. The two largest loans in the pool based on the fully funded balances are discussed below.

The transaction is concentrated, as the largest loan in the pool represents 18.5% of the fully funded pool balance based on the fully funded loan amount. This loan, 2280 North Greenville Avenue, which is secured by an office building in Richardson, Texas, was 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 single tenant, GEICO Insurance (GEICO), which signed a lease in January 2016. Specifically, the tenant signed a 152-month lease paying $13.75 per square foot (psf) triple net, with $0.38 psf annual increases. The lease commenced in January 2016, and GEICO received eight months’ free rent and a TI/LC package totalling $14.3 million. According to CoStar, comparable Class B office markets in the Richardson submarket are reporting average rental rates of $20.91 psf and vacancy rates of 17.7%. As of April 2017, the future funding facility has almost been fully advanced, with a remaining balance of $890. Given the long-term lease to an investment-grade tenant, the loan is expected to be refinanced in the near term.

The second-largest loan, Windsor Corporate Park, represents 11.8% of the fully funded pool balance and is secured by a four-building Class B office complex in East Windsor, New Jersey. The loan was originally structured with a future funding facility of $5.7 million. According to the servicer, the sponsor has allocated a portion of the funds to TIs/LCs for new tenants and renewals, while the $650,000 future funding facility for capital expenditures has been fully advanced, with work completed on exterior wall repairs and heating, ventilation and air conditioning replacement. Although the borrower has signed three new tenants, representing 8.0% of the net rentable area, the property occupancy rate remains depressed at 49.5% as of April 2017. The new leases have been signed in line with the market, as comparable Class B office properties in the submarket reported an average rental rate of $26.05 psf gross and vacancy rate of 18.3%, according to CoStar. Despite the elevated vacancy rate at the subject, the borrower has $4.8 million in future funding available as of April 2017, which can be used to facilitate leasing and aid in property stabilization.

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.

The ratings assigned to Class B, C, D, E and F notes materially deviate from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given the undemonstrated sustainability of loan performance trends.

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 principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.