KBRA Places HOA Funding, LLC on Watch Downgrade Due to Performance Concerns
27 Jun 2024 | New York
KBRA places the two outstanding ratings on HOA Funding, LLC Series 2021-1 on Watch Downgrade owing to deteriorating transaction performance. KBRA will endeavor to resolve or update the Watch Placements within 90 days. To resolve the Watch Placements, KBRA will request and consider deal specific metrics in its rating process including transaction cash flows and the credit quality of the Company. To date, the securities have received timely interest payments.
The table below displays the current capital structure and Watch Placements undertaken in this review.
Hooter’s reported DSCR decreased from approximately 2.50x as of the February 2024 payment date to 2.01x as of the May 2024 quarterly payment date. Additionally, the parent of certain non-securitization entities, which incurred debt after the transaction closing date, has experienced financial stress due to declining revenue and earnings which may meaningfully impact its ability to service such debt. This may increase the likelihood of operational disruptions. It has also been broadly reported that the system has recently closed approximately 40 stores.
As of the most recent quarter ending April 2024, the servicer reported DSCR of approximately 2.01x. The transaction has cash sweep triggers, whereby if on any quarterly payment date, the principal and interest DSCR is less than 2.00x but greater than or equal to 1.75x, less than 1.75x but greater than or equal to 1.50x, and less than 1.50x, then 25.0%, 50.0%, and 75.0%, respectively, of all excess cash flows will be used to repay the Notes. If the DSCR falls to 1.20x or LTM SWS falls under $425 million, a rapid amortization event will be triggered.
The table below displays transaction DSCR since Q1 2023.
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