[June 17, 2014]

Kroll Bond Rating Agency Assigns Preliminary Ratings to Colony American Homes 2014-2

Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of Colony American Homes 2014-2 (CAH 2014-2) single-family rental (SFR (News - Alert)) pass-through certificates.

CAH 2014-2 is a SFR securitization that will be collateralized by a $797.9 million loan secured by mortgages on 3,727 income-producing single-family homes. This is Colony American Homes' second securitization. The loan backing the securitization will be a non-recourse, first lien, floating rate mortgage loan originated by JPMorgan Chase Bank, N.A. on the securitization closing date and funded with proceeds of the sale of the certificates. The floating rate loan will require interest only payments and have a two-year term with three 12-month extension options. The underlying properties are one to four unit residential properties located in seven states, with the top three representing 73% of the portfolio (California (33.0%), Florida (27.2%), and Georgia (12.6%).

KBRA used a hybrid analysis to evaluate the SFR transaction, which incorporated elements of both our commercial mortgage-backed securities (CMBS) and residential mortgage-backed securities (RMBS) methodologies, as the underlying real estate contains 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 (PD). To determine loss given default (LGD), KBRA assumed the underlying collateral properties would be liquidated in the residential property market.

The loan will be secured by first priority mortgages on the properties, and a grant of a security interest in all personal property of the borrower. KBRA considers the mortgage structure to be superior to a loan secured solely by an equity pledge because the trust will have a first priority lien and security interest in the properties. Therefore, if the trust were to exercise remedies following a default, it would be able to acquire the properties, as opposed to having its recovery limited to the sponsor's equity. The utilization of mortgages in this transaction was essential in assigning an 'AAA' rating.

For details on KBRA's analysis, see the pre-sale report: Colony American Homes 2014-2 Pre-Sale Report.

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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