KBRA Downgrades Three Ratings and Affirms All Other Ratings for M360 2021-CRE3
27 Sep 2024 | New York
KBRA downgrades the ratings of three notes and affirms the remaining outstanding ratings for M360 2021-CRE3, a CRE CLO transaction with the ability to reinvest principal proceeds for 24 months. The downgrades reflect the transaction’s increase in specially serviced loans and K-LOCs with estimated losses. In addition, the rating action reflects the accumulating interest deferrals as the transaction has failed to satisfy the overcollateralization test since November 2023.
As of the September 2024 remittance period, there are eight specially serviced assets (38.5% of the current pool balance), which include a 90+ days delinquent loan (5.5%), six non-performing matured balloon loans (29.2%), and a performing matured loan (3.8%). KBRA identified 11 K-LOCs (48.8%), including the specially serviced assets. Of the K-LOCs, nine (33.1%) have estimated losses with a whole loan KBRA Loss Given Default (K-LGD) of $45.7 million. These include six top 10 loans:
- Fisherman’s Village (largest, 13.2% of pool balance)
- One & Two Conway Park (3rd largest, 8.3%, $17.2 million K-LGD, 66.4% loss severity)
- Gatehall IV (5th largest, 5.5%, $9.1 million, 53.0%)
- Jade Court Apartments (8th largest, 4.0%, $1.8 million, 9.6%)
- Highland Place II (9th largest, 3.8%, $7.4 million, 60.4%)
- Cedar Knolls Corporate Center (10th largest, 3.5%, $1.6 million, 13.3%)
Four other K-LOCs have estimated losses:
- The Fives at Erieview (2.7%, $1.0 million, 9.6%)
- Victory House (2.2%, $2.1 million, 29.9%)
- Targeting Centre (1.8%, $4.0 million, 70.4%)
- Aircraft Factory Development (1.1%, $1.7 million, 47.4%)
The remaining K-LOC (2.4%) does not have an estimated loss.
The transaction’s WA KLTV, inclusive of K-LOCs with estimated losses, is 153.8%, compared to 133.8% at last review and 131.0% at securitization. The KDSC at Index Cap is 1.07x, compared to 1.03x at last review and 1.01x at securitization. The overcollateralization test has not been satisfied since the November 2023 remittance period. The interest coverage test has been satisfied during each distribution date since issuance.
At securitization, 38 loans (90.3% of the issuance pool) had related companion participations representing unfunded future advance obligations, with an aggregate unfunded amount of $100.0 million. In total, there are currently 25 loans (94.9%), with unfunded future advance obligations with an aggregate of $54.2 million unfunded. However, of the remaining loans with unfunded future advance obligations, seven (36.0%) are in default and the obligations will not be paid going forward, which total $33.1 million of unfunded future advance obligations.
Details concerning the classses with ratings changes are as follows:
- Class E to BB (sf) from BBB- (sf)
- Class F to B- (sf) from BB- (sf)
- Class G to CCC (sf) from B- (sf)
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