KBRA Assigns Preliminary Ratings to Progress Residential 2018-SFR3
NEW YORK--(BUSINESS WIRE)--Sep 17, 2018--Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of Progress Residential 2018-SFR3 (Progress 2018-SFR3) single-family rental pass-through certificates.
Progress 2018-SFR3 is a single-borrower, single-family rental (SFR) securitization that will be collateralized by a $662.4 million loan secured by first priority mortgages on 3,459 income-producing single-family homes, of which 3,418 properties (98.9%) were sourced from Progress 2016-SFR1. In conjunction with the subject transaction, Progress 2016-SFR1 was fully repaid on September 7, 2018, which is expected to be reflected in the September 2018 remittance report. The fixed-rate loan will require interest-only payments and have a five-year term. Progress 2018-SFR3 will be the ninth KBRA-rated SFR securitization issued by Progress.
The subject transaction will be Progress’ first securitization to include a voluntary substitution feature that permits the issuer to replace any property or sub-portfolio of properties with a substitute property or portfolio of properties up to a maximum of 5.0% of the homes in the underlying portfolio, by count, as of the closing date. Progress is allowed to replace up to 172 properties over the remaining duration of the deal with occupied detached single-family homes. As the substitution threshold is by count, it is conceivable that up to 8.5% of the pool, by BPO value, could be substituted if the assets that were removed from the pool were comprised of those with the highest BPO values.
If a Low DSC period has occurred with respect to loan component E, F or G and there are insufficient available amounts to pay full or partial interest on Loan Component F and/or loan component G then the due interest on these components will be deferred and added to the respective principal balance. While such deferrals are occurring, any excess cash flow will be held in a reserve account until the cash flows improve and the DSC threshold is met for two consecutive quarters.
The underlying single-family rental properties are located in or near 20 Core Based Statistical Areas (CBSAs) across nine states. The top-three CBSAs represent 39.1% of the portfolio and include Tampa (16.2%), Atlanta (11.7%), and Phoenix (11.3%). The aggregate BPO value of the underlying homes was $794.7 million, yielding an LTV of 83.4%. KBRA adjusted the BPOs, which yielded an aggregate value of $726.1 million. This represents an 8.6% haircut to the nominal BPO value. The resulting LTV based on KBRA’s adjusted BPO value was 91.2%.
KBRA used its to evaluate the transaction. The methodology leverages elements of KBRA’s commercial mortgage-backed securities and residential mortgage-backed securities criteria due to the fact that the collateral underlying an SFR transaction has both commercial and residential characteristics. As the properties generate a cash flow stream from tenant rental payments, CMBS methodologies were used to determine the loan’s probability of default. To determine loss given default, KBRA assumed the underlying collateral properties would be liquidated in the residential property market.
The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.
Representations & Warranties Disclosure
All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report available .
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KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
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CONTACT: Kroll Bond Rating Agency
Daniel Tegen, Director
Akshay Maheshwari, Associate Director
Nitin Bhasin, CFA, Senior Managing Director
KEYWORD: UNITED STATES NORTH AMERICA NEW YORK
INDUSTRY KEYWORD: PROFESSIONAL SERVICES BANKING FINANCE
SOURCE: Kroll Bond Rating Agency
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PUB: 09/17/2018 01:24 PM/DISC: 09/17/2018 01:24 PM