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TMCNet:  KBRA Assigns Preliminary Ratings to LNCR 2018-CRE1

[May 16, 2018]

KBRA Assigns Preliminary Ratings to LNCR 2018-CRE1

Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to eight classes of LNCR 2018-CRE1, a $1.1 billion managed commercial real estate collateralized loan obligation (CRE CLO) securitization, with a 24-month reinvestment period. LoanCore Capital Credit Advisor LLC, an affiliate of LCC REIT, will serve as the transaction's collateral manager.

The transaction will initially be collateralized by 27 CRE whole loans (or participations therein) with an aggregate cut-off date balance of $1.1 billion. Previously unidentified whole loans and participations may be acquired during the reinvestment period, subject to the satisfaction of eligibility and reinvestment criteria. The eligibility criteria include, among other things, maximum stabilized LTV and minimum stabilized DSC requirements; pool level concentration limits for property type and geographic location; certain restrictions on participation interests and future funding assets; and that the rating condition must be satisfied with respect to KBRA. Further, during the life of the transaction, subject to satisfaction of the eligibility criteria and other requirements, the collateral manager is permitted to sell or exchange defaulted assets (without any limit) and sell or exchange credit risk assets representing up to 5.0% of the closing date mortgage assets.

The transaction also includes interest coverage (IC) and overcollateralization (OC) cash diversion tests which, in addition to structural subordination, provide credit enhancement to the investment grade-rated notes. If either of the tests are not satisfied on any payment date, interest proceeds remaining after payment of interest on the Class E notes will be diverted to pay down the investment grade-rated notes, beginning with the most senior class, in sequential order.

All 27 of the initial loans have floating interest rates indexed to one-month LIBOR. The loans are secured by the fee and leasehold interests in 33 properties. The initial pool's property types include multifamily (26.6%), office (21.2%), mixed-use (17.7%), industrial (15.8%), hospitality (14.4%), and retail (4.2%). The eligibility criteria also permit the acquisition of manufactured housing and self-storage assets.

KBRA's analysis of the transaction involved evaluation of property cash flows and values within the initial loan pool using our CMBS Property Evaluation Methodology. The results of the analysis yielded KBRA values that were, on a weighted average basis, 42.0% and 49.9% lower than the appraisers' as-is values and stabilized values, respectively, and a KBRA Loan to Value (KLTV) for the initial loan pool of 126.3%. The results of this analysis were utilized in the application of our US CMBS Multi-Borrower Rating Methodology. The analysis also included quantitative and/or qualitative review of the various structural features of the transaction, including the reinvestment feature and IC & OC tests, as well as a review of the legal documents, the results of which were incorporated into our ratings assignment process.

For complete details of the analysis, please see our pre-sale report, LNCR 2018-CRE1, published at 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 ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: LNCR 2018-CRE1

    Class       Initial Note Balance     Expected KBRA Rating    
      A       $473,807,000       AAA(sf)    
      A-S       $142,142,000       AAA(sf)    
      B       $64,491,000       AA-(sf)    
      C       $63,174,000       A-(sf)    
      D       $61,858,000       BBB(sf)    
      E       $30,167,000       BBB-(sf)    
      F       $38,272,000       BB-(sf)    
      G       $47,381,000       B-(sf)    

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 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 Representation & Warranties Disclosure report.

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and 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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