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TMCNet:  Kroll Bond Rating Agency Assigns Preliminary Ratings to UBS 2017-C3

[August 09, 2017]

Kroll Bond Rating Agency Assigns Preliminary Ratings to UBS 2017-C3

Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to 14 classes of UBS 2017-C3 (News - Alert) (see ratings list below), a $708.6 million CMBS conduit transaction collateralized by 42 commercial mortgage loans secured by 65 properties.

The collateral properties are located in 27 states, with two state exposures each representing more than 10.0% of the pool balance: California (25.3%) and New York (10.7%). The pool includes assets representing all of the major property types, with three that each represented more than 15.0% of the pool balance: office (30.4%), lodging (23.7%), and retail (21.8%). The loans have principal balances ranging from $1.8 million to $51.4 million for the largest loan in the pool, Ionis Pharmaceuticals - Gazelle Ct (7.2%), which is secured by a 176,000 sf Class-A office and R&D building located in Carlsbad, California, approximately 35 miles north of San Diego. The five largest loans, which also include Del Amo Fashion Center (7.1%), TZA Multifamily Portfolio I (7.1%), American Cancer Society Center (6.1%), and Embassy Suites - Santa Ana (5.4%) comprise 32.8% of the initial pool balance, while the top 10 loans represent 55.6%.

KBRA's analysis of the transaction incorporated our multi-borrower rating process that begins with our analysts' evaluation of the 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 6.2% 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 91.0% and an all-in KLTV of 106.2%. The model deploys rent and occupancy stresses, probability of default regressions, and loss given default calculations to determine losses for each collateral loan that are then used to assign our credit ratings.

For complete details on the analysis, please see our presale report, UBS 2017-C3 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 included in our CMBS Monthly Trend Watch publication.
  • Excel-based property cash flow statements for the top 20 loans.


Preliminary Ratings Assigned: UBS 2017-C3

       
Class       Class Balance (US$)       Expected KBRA Rating
A-1       $24,572,000       AAA (sf)
A-2       $97,843,000       AAA (sf)
A-3       $146,000,000       AAA (sf)
A-4       $181,922,000       AAA (sf)
A-SB       $45,701,000       AAA (sf)
X-A       $496,038,0001       AAA (sf)
A-S       $74,406,000       AAA (sf)
B       $32,774,000       AA (sf)
C       $28,345,000       A (sf)
X-B       $135,525,0001       AAA (sf)
D-RR2       $17,715,000       BBB+ (sf)
E-RR2       $13,287,000       BBB (sf)
F-RR2       $10,629,000       BBB- (sf)
G-RR2       $10,630,000       B+ (sf)
NR-RR2       $24,802,195       NR

1Notional balance

2To satisfy the retaining sponsor's US Risk Retention rules, these classes are expected to be purchased by a third party purchaser on the closing date. Such classes are intended to constitute an "eligible horizontal residual interest", representing at least 5.0% of the fair market value of all non-residual certificates issued.

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC (News - Alert) 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 is contained in the report entitled CMBS: UBS 2017-C3 Representations & Warranties Disclosure Report.

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

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).


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