KBRA Assigns Preliminary Ratings to Key Commercial Mortgage Trust 2020-S3
Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to 10 classes of Key Commercial Mortgage Trust 2020-S3 (KCM 2020-S3) commercial mortgage pass-through certificates.
KCM 2020-S3 is a $263.2 million small balance commercial securitization collateralized by 53 commercial mortgage loans secured by 87 properties. The collateral properties are located throughout 46 MSAs, the largest three of which are New Orleans (8.2%), Wilmington, OH (6.7%), and Inland Empire (6.5%). The pool has exposure to all of the major property types, with four types representing more than 10.0% of the pool balance: self-storage (24.4%), office (22.5%), industrial (22.3%), and multifamily (14.8%). The loans have principal balances ranging from $1.0 million to $21.6 million for the largest loan in the pool, Reagan Crossing Apartments (8.2%), which is secured by a garden-style multifamily property located in Covington, Louisiana. The five largest loans, which also include Weston South Carolina Industrial Portfolio (7.4%), Progress Park (6.7%), Inland Self Storage Michigan Portfolio (6.3%), and Corporate Ridge II (5.0%), represent 33.6% of the initial pool balance, while the top 10 loans represent 52.2%.
KBRA's analysis of the transaction incorporated our multi-borrower rating process that begins with our analysts' evaluation of the underlying collateral properties' financial and operating performance, which determine KBRA's estimate of sustainable net cash flow (KNCF) and KBRA value using our U.S. CMBS Property Evaluation Methodology. On an aggregate basis, KNCF was 7.6% 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, 41.5% less than third party appraisal values. The pool has an in-trust KLTV of 107.0% and an all-in KLTV of 111.8%. The model deploys rent and occupancy stresses, probability of default regressions, and loss given default calculations to determine losses for each collateral loan that are then used to assign our credit ratings.
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.
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 is registered with ESMA as a CRA.
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