Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to 15 classes of the CD 2017-CD3 transaction (see ratings list below). CD 2016-CD3 is a $1.3 billion CMBS conduit transaction collateralized by 52 commercial mortgage loans secured by 59 properties. On the securitization closing date, the transaction sponsors intend to comply with the US credit risk retention rules by employing an “L-shaped” structure: the sponsors will each retain a portion of an “eligible vertical interest” that comprises 1.9% of the principal amount of all interests in the issuing entity and a third party will purchase certificates comprising 3.1% of the fair value of all the interests and representing an “eligible horizontal retained interest”. This is the first CMBS conduit transaction to be announced since the US risk retention rules became effective for CMBS and the first CMBS transaction to employ an L-shaped structure.

The properties in the collateral pool are located in 25 states, with two state exposures that each represents more than 10.0% of the pool balance: New York (31.3%) and California (19.6%). The pool has exposure to all the major property types, including three that each represent more than 10.0% of the pool balance: office (52.0%), retail (20.2%), and lodging (15.7%). The loans have principal balances ranging from $3.3 million to $100.0 million for the largest loan in the pool, 229 West 43rd Street Retail Condo (7.5%), a 268,458 sf retail condominium unit in the New York City’s Times Square South neighborhood. The five largest loans, which also include 1384 Broadway (6.6%), 85 Tenth Avenue (5.6%), Medical Centre of Santa Monica (5.3%), and Prudential Plaza (5.3%), represent 30.4% of the initial pool balance, while the top 10 loans represent 52.5%.

KBRA’s analysis of the transaction incorporated our multi-borrower rating process that begins with our analysts' evaluation of underlying collateral properties' financial and operating performance, which determine KBRA’s estimate of sustainable net cash flow (KNCF) and KBRA value using our CMBS Property Evaluation Methodology. On an aggregate basis, KNCF was 6.6% less than the issuer cash flow. KBRA capitalization rates were applied to each asset’s KNCF to derive values that were, on an aggregate basis, 41.0% less than third party appraisal values. The pool has an in-trust KLTV of 100.3% and an all-in KLTV of 111.1%. The model deploys rent and occupancy stresses, probability of default regressions, and loss given default calculations to determine losses for each collateral loan, which are then used to assign our credit ratings.

For complete details on the analysis, please see our presale report, CD 2017-CD3 published today at www.kbra.com. The report includes our KBRA Comparative Analytic Tool (KCAT), an easy to use, Excel based workbook that provides the following information:

  • KBRA Deal Tape – Contains KBRA loan level details for every loan in the pool, and the ability for users to input adjustments to KNCF and KBRA Cap Rates and see the related impact on key deal metrics.
  • KBRA Credit Metrics Comparison Tool – Enables the user to compare the subject transaction to a user-defined transaction comp set. The feature provides many of the fields that are provided in our CMBS Monthly Trend Watch publication.
  • Excel based property cash flow statements for the top 20 loans.

Preliminary Ratings Assigned: CD 2017-CD3

Class       Initial Class Balance

 

   

Expected KBRA Rating

A-1       $29,155,000       AAA(sf)
A-2       $38,347,000       AAA(sf)
A-3       $370,000,000       AAA(sf)
A-4       $419,293,000       AAA(sf)
A-AB       $54,788,000       AAA(sf)
A-S       $78,136,000       AAA(sf)
X-A       $989,719,000*       AAA(sf)
B       $61,857,000       AA(sf)
X-B       $61,857,000*       AAA(sf)
C       $63,485,000       A(sf)
X-C       $63,485,000*       AAA(sf)
D       $76,508,000       BBB-(sf)
X-D       $76,508,000*       BBB-(sf)
E       $35,812,000**       BB-(sf)
F       $14,651,000**       B(sf)
G       $60,229,958**       NR
VRR Interest       $25,222,199***        

*Notional balance.

**These classes will be retained by the third party purchaser and constitute an “eligible horizontal retained interest” in partial satisfaction of the US risk retention requirements.

*** An ”eligible vertical interest” retained by the sponsors in partial satisfaction of US risk retention requirements.

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 asset-level representations, warranties and enforcement mechanisms set forth in the related offering documents when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report entitled CMBS: CD 2017-CD3 Representations & Warranties Disclosure Report.

Related publications (available at www.kbra.com):

CMBS: CD 2017-CD3 Presale Report

CMBS: U.S. CMBS Multi-Borrower Rating Methodology, published January 4, 2017

CMBS Property Evaluation Methodology, published December 3, 2015

CMBS: Methodology for Rating Interest-Only Certificates in CMBS Transactions, published June 6, 2016

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).