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KBRA Assigns Ratings to Progress Residential 2020-SFR2

Kroll Bond Rating Agency (KBRA) assigns ratings to six classes of Progress Residential 2020-SFR2 (Progress 2020-SFR2) single-family rental pass-through certificates.

Progress 2020-SFR2 is a single-borrower, single-family rental (SFR) securitization collateralized by a $405.9 million loan secured by first priority mortgages on 2,067 income-producing single-family homes. The fixed-rate loan requires interest-only payments and has a five-year term. The subject transaction is the 13th KBRA-rated SFR securitization issued by Progress Residential.

The underlying single-family rental properties are located in or near 15 core-based statistical areas (CBSAs) across nine states. The top three CBSAs represent 42.3% of the portfolio and include Phoenix (17.9%), Las Vegas (12.6%), and Orlando (11.8%). The aggregate BPO value of the underlying homes was $463.9 million, yielding an LTV of 87.5%. KBRA adjusted the BPOs, which yielded an aggregate value of $417.2 million. This represents a 10.1% haircut to the nominal BPO value. The resulting LTV based on KBRA’s adjusted BPO value was 97.3%.

The loan’s cash management structure features a "Low DSC Period" concept. If the DSC of loan component E or F is less than 1.20x as of the last day of any calendar quarter (a trigger period), all interest due with respect to loan component F will be deferred and added to its principal balance. While such deferrals are occurring, any excess cash flow will be made available in a reserve for budgeted monthly operating expenses, capital expenditures, and the more senior loan components. As the certificate payment structure effectively mirrors that of the loan component structure, the feature can benefit the more senior classes of its structure relative to transactions that do not provide for cash flow diversion in Low DSC Periods. Such benefits are at the expense of the more subordinate certificates. However, if cash flows improve and the DSC threshold is met for two consecutive quarters the funds will be released and any deferred amounts will be repaid.

KBRA used its U.S. Single-Family Rental Securitization Methodology to evaluate the transaction. The methodology leverages elements of KBRA’s commercial mortgage-backed securities and residential mortgage-backed securities criteria due to the fact that the collateral underlying an SFR transaction has both commercial and residential characteristics. As the properties generate a cash flow stream from tenant rental payments, CMBS methodologies were used to determine the loan’s probability of default. To determine loss given default, KBRA assumed the underlying collateral properties would be liquidated in the residential property market.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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Contacts

Analytical Contacts:

James Choi, Analyst (Lead Analyst)
+1 (646) 731-3359
jchoi@kbra.com

Scarlett Qi, Associate
+1 (646) 731-2468
sqi@kbra.com

Akshay Maheshwari, Director
+1 (646) 731-2394
amaheshwari@kbra.com

Daniel Tegen, Senior Director
+1 (646) 731-2429
dtegen@kbra.com

Nitin Bhasin, CFA, Senior Managing Director (Rating Committee Chair)
+1 (646) 731-2334
nbhasin@kbra.com

Business Development Contact:

Michele Patterson, Managing Director
+1 (646) 731-2397
mpatterson@kbra.com