Rialto Capital is prepping a $94 million deal backed largely by non-performing commercial mortgage loans, according to a pre-sale report from Kroll Bond Ratings Agency.
Wells Fargo, Deutsche Bank and UBS Securities are arranging the upcoming deal, RIAL, Series 2014-LT5.
Two classes of notes will be issued under the capital structure. KBRA expects to rate the class A notes BBB-, it will not rate the class B notes. The deal has equity interest valued at $31.5 million.
The deal is backed by 224 real-estate-owned (REO) properties, non-performing loans, and performing loans, which are related to 108 unique borrower relationships. REOs are also considered non-performing loans. The assets have an aggregate unpaid principal balance (UPB) of $349.8 million, were acquired for $126.2 million, according to the KBRA presale report.
The collateral securing the loans is comprised of land, commercial and multifamily real estate properties and residential assets.
More than four-fifths of the assets (84.5%) are REO, which is significantly above the average REO exposure in the last five NPL transactions rated by KBRA, which ranged from 0.5% to 56.7%.
“REO assets may benefit from higher recoveries and faster resolution times than NPLs, as the costs and time associated with foreclosure have already been incurred, and the cash flows from property operations and/or a sale are not subject to potential interference by distressed borrowers,” according to the presale. “However, if the REO asset does not generate cash flow, the related carry costs must be borne by the trust, reducing cash flow and ultimate recovery proceeds.”
The majority of the non-income producing collateral are REO assets (88.3%). Although the REO assets may have faster resolution times as mentioned above, "non-income producing assets have a higher credit risk profile than income producing assets because their value is primarily dependent on capital appreciation or depreciation, and non-performing assets may require significant carry costs until they are resolved,” explained analysts in the presale report.
The pool of non-income producing collateral is comprised of land (48.6%), residential properties (9.8%), and other non-real estate collateral (0.0%). This is the largest exposure to non- income producing collateral, relative to the last five NPL transactions rated by KBRA, where this exposure ranged from 19.3% to 40.0%.
The majority of the non-income producing collateral are REO assets (88.3%). Although the REO assets may benefit from faster resolution times as mentioned above, "non-income producing assets have a higher credit risk profile than income producing assets because their value is primarily dependent on capital appreciation or depreciation, and non-performing assets may require significant carry costs until they are resolved,” explained analysts in the presale report.
The pool of non-income producing collateral is comprised of land (48.6%), residential properties (9.8%), and other non-real estate collateral (0.0%). This is the largest exposure to non- income producing collateral, relative to the last five NPL transactions rated by KBRA, where this exposure ranged from 19.3% to 40.0%. This is the largest exposure to non- income producing collateral, relative to the last five NPL transactions rated by KBRA, where this exposure ranged from 19.3% to 40.0%.
