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KBRA Assigns Preliminary Ratings to NLY 2019-FL2
[February 11, 2019]

KBRA Assigns Preliminary Ratings to NLY 2019-FL2

Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to seven classes of NLY 2019-FL2, a $857.3 million managed commercial real estate collateralized loan obligation (CRE CLO) securitization, with a 24-month reinvestment period that includes a six-month ramp-up period. Annaly Credit Opportunities Management LLC, a subsidiary of Annaly Capital Management, Inc., will serve as the transaction's collateral manager.

The transaction will initially be collateralized by 18 CRE whole loans (or senior participations therein) with an aggregate cut-off date balance of $689.1 million, along with $168.3 million of cash that can be used to acquire loans during the ramp-up period. The pool includes one delayed-close asset ($50.0 million) that can be acquired within 90 days following the transaction's closing date. Previously unidentified whole loans and participations may be acquired during the ramp-up and reinvestment periods, subject to eligibility and reinvestment criteria. The eligibility criteria includes, among other things, maximum stabilized LTV and minimum stabilized DSC requirements; pool level concentration limits for loan size, property type, and geographic location; certain restrictions on participation interests and future funding assets; and that the rating condition must be satisfied with respect to KBRA.

The transaction also includes interest coverage (IC) and overcollateralization (OC) cash diversion tests which, in addition to structural subordination, provide credit enhancement to the rated notes. Should either of the tests not be satisfied, interest proceeds remaining after payment of Class D interest would be diverted to pay down the senior notes in a sequential manner.

All of the initial mortgage assets are floating rate loans indexed to one-month LIBOR. The loans are secured by the fee and leasehold interests in 21 properties. The initial pool's property types include office (42.4% of the pool balance of $739.1 million, inclusive of one delayed-close asset), multifamily (23.9%), retail (15.9%), lodging (15.4%), and mixed-use (2.3%). The eligibility criteria also permit the acquisition of multifamily (including student housing), industrial, office, retail, self-storage, lodging, and mixed-use.

KBRA's analysis of the transaction involved evaluation of property cash flows and values within initial loan pool using our U.S. CMBS Property Evaluation Methodology. The results of the analysis yielded KBRA values that were, on a weighted average basis, 39.2% and 47.7% lower than the appraisers' as-is values and stabilized values, respectively, and a KBRA Loan to Value (KLTV) for the initial loan pool of 118.3%. The results of this analysis were utilized in the application of our U.S. CMBS Multi-Borrower Rating Methodology. The analysis also included quantitative and/or qualitative review of the various structural features of the transaction, including ramp-up, reinvestment, and IC & OC tests, as well as a review of the legal documents, the results of which were incorporated into our ratings assignment process.

For complete details on the analysis, please see our pre-sale report, NLY 2019-FL2, published at The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: NLY 2019-FL2

Class     Initial Note Balance     Expected KBRA Rating
A     $447,956,000     AAA(sf)
A-S     $51,440,000     AAA(sf)
B     $54,655,000     AA-(sf)
C     $57,870,000     A-(sf)
D     $67,515,000     BBB-(sf)
E     $45,010,000     BB-(sf)
F     $23,577,000     B-(sf)
Preferred Shares     $109,310,260     NR

To access ratings, reports and disclosures, click here.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. 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, is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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