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Glossary
PAC IO
An interest-only tranche whose cashflows are “stripped” from the excess interest payments on mezzanine bonds in the CMBS structure. Also see
Mezzanine Classes .
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Glossary
Pari Passu Loan
A single loan backed by a certain property or portfolio of properties, which is divided among several smaller components (each smaller component has the same last dollar risk). Each component can be held by different parties and is often securitized in separate CMBS transactions. Each component is paid scheduled interest and principal payments on a prorated basis depending on their size relative to the larger loan. Each pari passu component receives equal legal treatment and, in the event of a default, receives a prorated portion of the net liquidation proceeds.
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Glossary
Pay Rate
The periodic rate at which interest is paid on a mortgage. This may differ from the accrual rate.
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Glossary
Percentage Lease
Lease commonly used for large retail stores where rent payments include a base rent plus a percentage of the gross sales (“overage”) if sales are greater than a stipulated amount (or rent payments equal a percentage of gross sales). Percentages typically range from one to six percent of gross sales.
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Glossary
Periodic Payments
Regular payments (typically monthly, but quarterly or annual also) made consisting of interest and/or interest and principal.
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Glossary
Phase I Environmental Site Assessment (ESA)
A report prepared by an environmental consultant which reviews the property and surrounding land to ascertain the presence or potential presence of environmental hazards. The analysis examines any ground water contamination, PCBs, abandoned disposal of paints and other chemicals, asbestos or a wide range of other potential contaminants. This Phase I ESA provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II ESA). The latter report would confirm or deny the presence of an environmental hazard and, should one be found, will recommend additional review and/or mitigating effects that should be undertaken.
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Glossary
PML
See Probable Maximum Loss.
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Glossary
Pooling and Servicing Agreement (PSA)
The principal agreement governing the CMBS securitization which provides for the following: (i) creation of the trust; (ii) conveyance of the mortgage loans by the depositor into the trust; (iii) appointment of the trustee, master servicer, special servicer, operating advisor and asset representations reviewer; (iv) issuance of mortgage pass-through certificates that will be sold to investors; (v) waterfall distribution of payments and advancing obligations; (vi) the rights, obligations, and duties of each of the parties; (vii) servicing provisions for the mortgage loans and the Servicing Standard to be followed; (viii) REMIC requirements and compliance; (ix) reporting requirements, including SEC and CREFC IRP; and (x) other miscellaneous or deal specific provisions.
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Glossary
Preliminary Prospectus
Also known as a “red”, the document filed with the SEC in connection with a registered offering that includes all or most of the information (other than pricing information) that will be included in the final prospectus and is subject to amendment. In a private transaction, the “red” is generally called a preliminary offering circular or preliminary private placement memorandum. Also see Prospectus.
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Glossary
Prepayment
A whole or partial repayment of principal by the borrower greater than or earlier than a scheduled payment on a mortgage loan. Most occurrences are due to borrower refinancing at lower interest rates or due to capital appreciation of the property value.
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Glossary
Prepayment Interest Shortfall
The difference between the interest accrued on the corresponding certificates and the interest accrued on the prepaid loan. In the event of a prepayment of principal, interest received on the loan is less than the interest due on the certificates. To the extent that any such shortfall is allocated to a certain class of offered certificates, the yield on that class will be adversely affected.
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Glossary
Prepayment Premium or Prepayment Penalty
Language in loan documents requiring a borrower to pay a premium or penalty for any prepayments made on a mortgage loan. Most prepayment premiums are structured either as yield maintenance or penalty points.
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Glossary
Prepayment Risk
The risk that a borrower will repay the remaining principal or an amount greater than the scheduled payment on a mortgage prior to maturity, thus shortening the life of the loan. In order to reduce prepayment risk, commercial mortgages often have call protection provisions.
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Glossary
Present Value (PV)
Current value of a future sum of money given a specified rate of return (i.e., discount rate).
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Glossary
Primary Market
The market in which newly issued loans or securities are sold. When loans or securities are sold by the initial lender to another investor, they constitute the secondary market.
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Glossary
Priority of Distributions
The CMBS provision that defines how, when and to whom the available funds will be distributed.
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Glossary
Private Label Securities
Securities backed by mortgages that are issued by the private sector, including conduits, banks, thrifts and other financial institutions. These securities are also known as non-agency securities and are not backed by agencies such as Fannie Mae, Freddie Mac, or Ginnie Mae.
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Glossary
Private Placement
The private sale of securities to certain “qualified institutional buyers” or institutional “accredited investors” who meet specific criteria of net worth and/or income or non-US buyers. Private placement securities are generally exempt from registration requirements of the Securities Act of 1933. Investors may be permitted access to a “data room” to scrutinize additional information in connection with private placements that would not otherwise be publicly released due to confidentiality restrictions or filing requirements. As a result, private placements are particularly suitable for the lower-rated tranches of CMBS because investors have access to more information on which to base a decision. Also see SEC Rule 144A.
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Glossary
Probable Maximum Loss (PML)
A statistical analysis that determines the severity of earthquake risk for a property in an earthquake-prone area by defining the damage ratio due to the worst possible earthquake scenario. PML is also used to quantify risk from other natural disasters such as hurricanes, floods and tornadoes. Generally, properties with PMLs over a certain threshold (perhaps 20%) are required to carry additional insurance coverage.
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Glossary
Prospectus
The document filed with the Securities and Exchange Commission (SEC) in connection with a registered offering that stipulates all the material information about a security. The final prospectus is commonly called “the black” to differentiate it from the preliminary prospectus, or “the red”. In the case of a CMBS, the prospectus lists various details, including (but not limited to) the properties collateralizing the security, the terms and conditions of payment to security holders, the payment sequence among classes, the contingency plan in the event that mortgages are not paid as expected, and the treatment of defaults and prepayments. All relevant information about a security must be spelled out in the prospectus.
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Glossary
PSA
See Pooling and Servicing Agreement.