Moody's rating new REO-to-rental securitization
$291M Triple A tranche the largest yet
Moody's Investors Service assigned provisional ratings to four classes of certificates backed by one floating rate loan secured by mortgages on 3,399 single-family rental properties owned by the Colony American Homes 2014-1 securitization.
Morningstar Credit Ratings was the first to rate this securitization on Wednesday morning.
This rating for the largest tranche in the deal for Colony American Homes, at $291 million, exceeds Moody’s first such rating, when it awarded a sterling Triple-A ratings to Invitation Homes' inaugural REO-to-rental in October 2013, giving it $278.7 million in triple-A ratings for the largest tranche of the deal.
Here’s how the ratings for Colony American Homes broke down:
- $291 million of Class A certificates, Assigned (P) Aaa (sf)
- $42 million of Class B certificates, Assigned (P) Aa2 (sf)
- $56 million of Class C certificates, Assigned (P) A2 (sf)
- $40.5 million of Class D certificates, Assigned (P) Baa2 (sf)
Moody's evaluation of the issuer's ultimate ability to repay interest and principal was based on a recovery analysis of the portfolio of single-family rental properties backing this securitization.
“Our recovery analysis approach is not an opinion that the loan will default and is not a prediction of the sponsor's intended future plans, but rather represents our analysis of what we consider to be a significantly stressful resolution,” the firm said in a formal statement.
In early March, Moody’s created new criteria for rating single-family rental securitizations.
Colony American Homes 2014-1’s portfolio cash flow was not a significant factor. Moody’s said the current limited availability of historical information surrounding vacancy rates, expenses and cash flow associated with single family rental properties through a stressed environment prevented the firm from relying heavily on cash flow as a metric.
Moody's was positive on the property manager CAH Property Management's ability to manage a national single-family rental platform and said that Colony American Homes has a disciplined approach to acquisition and initial renovations.
In addition, as was noted as an important element for successful REO-to-rental operations at the ABS West conference in January, Colony American Homes has the technology systems that allow it to efficiently manage employees to control labor costs, track and monitor repairs and maintenance, and, most importantly, to attract, respond to and retain tenants.
Right now the 14-million-home rental market is geographically fragmented, with a few exceptions where buyers have gone in and bought up entire tracts in neighborhoods. Kruti Muni, analyst with Moody’s, said that such remote technologies are critical so that property managers aren’t literally driving all over a metro area fixing leaky pipes and collecting rent checks.
The full Moody's evaluation document can be read here.