Kroll Bond Rating Agency (KBRA) announces the assignment of preliminary ratings to eight classes of BX Trust 2019-OC11, a CMBS single-asset, single-borrower transaction.

The collateral for the transaction is a $2.0498 billion portion of a $3.01 billion non-recourse, first lien mortgage loan. The fixed rate loan has a 10-year term and requires monthly interest-only payments at a fixed interest rate of 3.67%. The loan is secured by the borrower’s fee interest in the 3,933-key Bellagio Las Vegas (and leasehold interest in two small parcels of land), which is located on approximately 77 acres of prime property along the Las Vegas Strip. The real property assets were acquired by the sponsor, BREIT Operating Partnership L.P., and immediately leased back to MGM Resorts International (“MGM”) under a triple net master lease. MGM will operate and maintain the property, including the gaming operations, under the master lease.

The main source of revenue available to the borrower for making payments on the mortgage loan is derived from master lease payments received from MGM under the Bellagio master lease. The borrower is entitled to an annual master lease base rent of $245.0 million with 2.0% increases each year for the initial 10 years, subject to adjustment thereafter. For years 11 to 30, rent will be adjusted to increase at the greater of 2.0% or CPI (capped at 3.0% for years 11 to 20 and 4.0% thereafter).

KBRA utilized a look-through analysis of the transaction which included a “look through” to the cash flow and value from the property operations using our U.S. CMBS Property Evaluation Methodology, and the application of our U.S. CMBS Single Borrower and Large Loan Rating Methodology, as well as an analysis of the cash flow from the master lease payments. In addition, KBRA also relied on its Global Structured Finance Counterparty Methodology for assessing counterparty risk in this transaction, to the extent deemed applicable. The results of our look-through analysis yielded a KBRA net cash flow (KNCF) for the property of $418.3 million. KBRA applied a capitalization rate of 10.50% for the hotel and casino revenues, before a 2.5% downward adjustment to account for the costs associated with a potential foreclosure. KBRA arrived at an adjusted KBRA value of $3.9 billion and a KBRA Loan to Value (KLTV) of 77.5%. In our analysis of the transaction, we also reviewed and considered third party engineering, environmental and appraisal reports; STR reports; the results of our site inspection; and legal documentation.

The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of ratings that differ from the preliminary ratings.

For further details on KBRA’s analysis, please see our pre-sale report published at www.kbra.com. To access ratings, reports and disclosures, click here.

Preliminary Ratings Assigned: BX Trust 2019-OC11

Class

   

Initial Class Balance

   

Expected
KBRA Rating

A

   

$561,200,000

   

AAA (sf)

X-A

   

$561,200,0001

    

AAA (sf)

X-B

   

$470,300,0001

    

AAA (sf)

B

   

$154,800,000

   

AA+ (sf)

C

   

$315,500,000

   

A+ (sf)

D

   

$335,000,000

   

A- (sf)

E

   

$554,780,000

   

BBB- (sf)

HRR

   

$128,520,0002

    

BBB- (sf)

1Notional balance. 2Represents the “eligible horizontal residual interest” in satisfaction of the US risk retention rules.

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

  • BX Trust 2019-OC11 Pre-Sale Report
  • U.S. CMBS Property Evaluation Methodology
  • U.S. CMBS Single Borrower and Large Loan Rating Methodology
  • Methodology for Rating Interest-Only Certificates in CMBS Transactions
  • Global Structured Finance Counterparty Methodology

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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. KBRA is also 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.