DBRS Confirms All Classes of A10 Bridge Asset Financing 2015-A, LLC

DBRS Limited (DBRS) confirmed the following classes of secured Fixed-Rate Notes (the Notes) issued by A10 Bridge Asset Financing 2015-A, LLC:

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

All trends are Stable. Classes A-1, B-1, C-1 and D-1 represent the offered certificates. Classes E-1 and F-1 are non-offered certificates and have been retained by an affiliate of the issuer along with the Membership Interests.

The rating confirmations reflect the performance of the transaction, which remains in line with DBRS’s expectations at issuance. The transaction consists of 22 loans secured by 31 transitional commercial real estate assets, including retail, office, multifamily and industrial properties. According to the June 2018 remittance, there has been collateral reduction of 2.7% since issuance, as two loans have repaid, contributing to a principal paydown of $2.9 million. The pool has an aggregate principal balance of $103.3 million as of June 2018. The transaction closed in April 2015 and featured a funding period through April 2016, whereby the issuer had the ability to upsize the pool with additional collateral, subject to certain Eligibility Criteria and Concentration Limits. Following the funding period, the transaction paid sequentially, with 24 loans secured by 33 commercial properties as of July 2017, all originated by A10 Capital, LLC (A10). To date, 18 loans (65.2% of the pool) have remaining unfunded pari passu companion participations totalling $17.0 million. Most of the properties are currently cash-flowing assets in a period of transition with viable plans and loan structure in place to facilitate stabilization and value growth.

The pool is concentrated by loan size, as the largest 15 loans represent 87.1% of the pool. The pool is also concentrated by property type, as retail (54.4% of the pool) and office (35.3% of the pool) properties represent 89.7% of the pool balance. Per the YE2017 financials, the pool had a weighted-average debt yield of 7.6%, based on the fully funded whole loan amount (inclusive of the unfunded pari passu companion participations). Most loans have an initial term of three to five years, with extension options available, subject to loan document criteria. Three loans (8.4% of the pool) have initial maturities in Q4 2018. As of the June 2018 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 balance is discussed below.

The Rite Aid Portfolio (Prospectus ID#34; 15.7% of the fully funded pool balance) is secured by a ten-property retail portfolio of single tenant Rite Aid Drug Stores. Nine of the properties are in New York, and the remaining property is in Chattanooga, Tennessee. The properties were all built between 1997 and 2003 and were originally leased to Eckard Drug Stores. At contribution, the sponsor had purchased the portfolio assets with a business plan of selling off the individual properties for a premium throughout the loan term. The merger between Walgreens Boots Alliance Inc. (WBA) and Rite Aid Corporation was initially announced in October 2015; the sponsor purchased the subject properties in November 2016 when there was uncertainty regarding the proposed merger, which could potentially have resulted in a higher sales price for the individual assets. However, the merger agreement was ultimately terminated in June 2017, and WBA instead purchased 1,932 Rite Aid stores. The servicer noted that as of February 2018, none of the stores in the portfolio had been affected by the store acquisition plan to be completed by WBA by March 2018. An online search for each of the properties shows that as of July 2018, each location is open and operating as a Rite Aid.

The loan is structured with an execution covenant, which requires the borrower to sell a certain number of properties prior to the 18th, 24th and 30th month of the loan term. In the event that the borrower is unable meet the execution timeline, all excess cash flow will be swept into a cash management account to paydown the loan. The 18th month of the loan term passed on June 30, 2018, by which date the borrower was required to have sold two properties. DBRS has reached out to the servicer to confirm if assets have been sold as per the loan requirements. The borrower noted that the Chattanooga location had been under contract for a sales price of $2.6 million ($212 psf) in January 2018, reflecting a 31.3% premium over the $2.0 million acquisition price. However, the sale did not materialize, and the borrower requested a loan modification in Q1 2018 to extend the sell-off of the two assets on month 18 without penalty, which was ultimately denied by A10.

As of February 2018, the portfolio was 100.0% occupied with an average rental rate of $31.09 psf compared with $24.09 psf in November 2016. The YE2017 debt service coverage ratio was reported at 1.31 times, and the YE2017 net operating income debt yield was reported at 14.3%, reflecting a 10.3% increase over the DBRS stabilized net cash flow figure.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance-related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate initially in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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