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CRE Finance World, Autumn 2012

CMBS Opportunities: Any Floating-Rate Port in a Storm Chart 2 transactions were downgraded by the rating agencies during the GSMS 2007-EOP Capital Structure ($Millions except PSF Data) financial crisis (often to below investment-grade) and have since been Floating Rate Single Borrower Transaction paid down materially, there is often a ratings arbitrage opportunity for what once were junior-pay classes that have now migrated to first or second-pay tranches. As illustrated below in the COMM 2005-F10A Securitization that originally consisted of 22 assets representing $1.7 billion of Trust debt, by 2012, all but two of the loans had been repaid and the Trust balance had been reduced to just $75 million. Due to the significant repayments at the Trust level, the Class G bonds (originally the 10th pay certificates) had become the new front-pay bonds. Due in part to rating agency lag, the Class G certificates remained rated BB-, despite being the senior-most bonds in the CMBS Trust and having an estimated 17% loan-to-value. In fact, when one of the remaining assets in the Trust (10 Metrotech Center) was sold out of foreclosure later in the year, the Class G and H bonds were repaid in full. (1) Includes LIBOR Floor of 0.75% Chart 4 Source: Trepp/Morningstar COMM 2005-F10A Capital Structure ($Millions) Large Loan Pooled Floating Rate Transaction Chart 3 COMM 2012-CCRE2 Capital Structure ($Millions) Fixed Rate “CMBS 3.0” Conduit Transaction (1) Reflects Yield-to-Maturity for classes priced on August 8, 2012 (2) Total does not sum as it includes all of the classes offered by the Trust Source: Trepp/Commercial Mortgage Alert The Case for Large Loan Floating-Rate Transactions with Source: Trepp/Morningstar Limited Remaining Assets There are approximately 40 large loan floating-rate securitizations Another area of opportunity, in our view, is in legacy pooled large currently outstanding in the CMBS universe. In addition to underwriting loan floating-rate transactions. Often originally comprised of the credit of the underlying Trust assets, special consideration must between 10-20 large floating-rate loans with different sponsors, be given to the impact of potential loan extensions and special these transactions, over time, have been reduced to vastly smaller servicing resolution and work-out fees and their respective impact pools often of five or fewer loans. Additionally, since many of these on duration and anticipated yield-to-maturity. A publication of Autumn issue 2012 sponsored by CRE Finance World Autumn 2012 29


CRE Finance World, Autumn 2012
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