Kroll Bond Rating Agency (KBRA) releases its Managed CRE CLO Eligibility Criteria: An Inside Look report, which reviews the eligibility criteria (EC) in managed commercial real estate collateralized loan obligations (CRE CLOs) and discusses how they have varied among the deals rated by KBRA since 2017.

EC are a key structural feature in managed CRE CLOs. In these transactions, collateral managers are allowed to reinvest principal proceeds and, in some cases, ramp up a deal with previously unidentified mortgage assets. The collateral pool has the potential to experience credit and concentration drift subsequent to transaction closing, since collateral managers can acquire or reinvest in mortgage assets that have not been previously identified. To mitigate the risk of negative migration, managed CRE CLOs feature EC that must be met prior to acquiring assets during the ramp-up and reinvestment periods. However, EC are also defined in fairly broad terms to provide sponsors the flexibility to successfully run their lending businesses.

KBRA delves into the potential for negative credit and concentration migration and how they are mitigated by EC, such as, minimum pool HERF, limits on loan size, property type and geographic concentration, restrictions on future funding, and parameters for issuer underwriting.

To read the full report, please click here.

Related Publications: (available at www.kbra.com)

  • CRE CLO Trend Watch Year-End 2018
  • CRE CLOs: A Primer, Today’s CRE CLOs Aren’t Yesterday’s CRE CDOs

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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.