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Kroll Bond Rating Agency Assigns Preliminary Ratings to CGCMT 2017-P7


Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to 15 classes of the CGCMT 2017-P7 transaction (see ratings list below). CGCMT 2017-P7 is a $1.0 billion CMBS conduit transaction collateralized by 46 commercial mortgage loans secured by 58 properties.

The underlying collateral properties are located in 24 states, with three state exposures that each represents more than 10.0% of the pool balance: New York (20.7%), California (20.6%), and Ohio (13.9%). The pool has exposure to all of the major property types, with two that represent more than 10.0% of the pool balance: office (53.6%) and retail (18.6%). The loans have principal balances ranging from $2.5 million to $74.7 million for the largest loan in the pool, Mack-Cali Short Hills Office Portfolio (7.3%), a 572,168 sf Class-A suburban office complex located in Short Hills, New Jersey, approximately 25 miles west of New York City. The five largest loans, which also include 50 Broadway (6.0%), Key Center Cleveland (4.9%), Scripps Center (4.9%), and Cascade Village (4.9%), represent 28.0% of the initial pool balance, while the 10 largest loans represent 46.0%.

KBRA’s analysis of the transaction incorporated our multi-borrower rating process that begins with our analysts' evaluation of 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 6.5% 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, 40.1% less than third party appraisal values. The pool has an in-trust KLTV of 99.5% and an all-in KLTV of 105.2%. The model deploys rent and occupancy stresses, probability of default regressions, and loss given default calculations to determine losses for each collateral loan, which are then used to assign our credit ratings.

To satisfy the US credit risk retention rules, this transaction will employ an “L-shaped” structure. A third party purchaser will purchase an “eligible horizontal residual interest” consisting of the Class E, F and G certificates and each of the sponsors will retain a portion of the “eligible vertical interest” represented by the VRR Interest.

For complete details on the analysis, please see our presale report, CGCMT 2017-P7 published today at www.kbra.com. The report includes our KBRA Comparative Analytic Tool (KCAT). KCAT is 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: CGCMT 2017-P7

Class     Initial Class Balance     Expected KBRA Rating
A-1         $18,129,000     AAA (sf)
A-2         $94,881,000     AAA (sf)
A-3         $250,000,000     AAA (sf)
A-4         $289,834,000     AAA (sf)
A-AB         $49,088,000     AAA (sf)
A-S         $71,447,000     AAA (sf)
X-A         $773,379,000*     AAA (sf)
B         $45,124,000     AA (sf)
X-B         $45,124,000*     AAA (sf)
C         $47,631,000     A (sf)
X-C         $47,631,000*     AAA (sf)
D         $57,659,000     BBB- (sf)
X-D         $57,659,000*     BBB- (sf)
E         $27,576,000**     BB- (sf)
F         $10,028,000**     B (sf)
G         $41,363,974**     NR
VRR Interest(1)         $22,556,995**     NR
*Notional balance
** To satisfy the US risk retention rules, a third party purchaser will purchase an “eligible horizontal residual interest” consisting of the Class E, F and G certificates and each of the sponsors will retain a portion of the VRR Interest, an “eligible vertical interest” in the transaction represented by a single security.
(1) KBRA is not assigning a rating to the VRR Interest. However, on and after the closing date, each sponsor can exchange its portion of the VRR Interest into exchangeable classes of certificates. The anticipated exchangeable classes to be issued on the closing date and preliminary ratings of the rated classes are as follows: V-A, AAA(sf); V-B, AA(sf); V-C, A(sf); V-D, BBB-(sf); V-AB, AA(sf); V-C, A(sf); V-D, BBB-(sf). The exchangeable classes will continue to be retained by the sponsors as an eligible vertical interest in accordance with US risk retention rules.

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC 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: CGCMT 2017-P7 Representations & Warranties Disclosure Report.

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

CMBS: CGCMT 2017-P7 Pre-Sale Report
CMBS: U.S. CMBS Multi-Borrower Rating Methodology, published January 4, 2017CMBS Property Evaluation Methodology, published December 3, 2015
Methodology for Rating Interest-Only Certificates in CMBS Transactions, published June 6, 2016

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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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