Kroll Bond Rating Agency Assigns Preliminary Ratings to RIAL, Series 2014-LT5

Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of its preliminary ratings to the Class A notes issued in the RIAL, Series 2014-LT5 transaction.

RIAL, Series 2014-LT5 is a non-performing loan (NPL) securitization of 224 real-estate-owned (REO) properties, NPLs, and performing loans (collectively, the assets), which are related to 108 unique borrower relationships. The assets have an aggregate unpaid principal balance (UPB) of $349.8 million, were acquired for $126.2 million (36.1% of UPB) and will be sold to the trust by Rialto Capital Management, LLC. The transaction is structured as a liquidation vehicle that monetizes recoveries from the assets to pay the rated notes.

The underlying collateral is comprised of land (48.6% of acquisition basis), commercial and multifamily real estate properties (CRE; 41.6%), residential assets (residential; 9.8%), and other non-real estate collateral (other collateral; 0.0%). The top-three state exposures are Florida (23.2%), Georgia (21.8%), and Maryland (14.3%). The largest, top-ten, top-25 and top-50 relationships comprise 14.3%, 57.8%, 81.2%, and 95.5% of the pool’s acquisition basis, respectively.

To evaluate and rate this transaction, KBRA followed a multi-step “ground-up” approach, which leveraged our commercial and residential real estate methodologies. KBRA derived a “baseline value” for each collateral item using one or more methods. These included the income capitalization approach, comparable sales approach, as well as discounting third party valuation conclusions and the asset manager’s estimates of net sales proceeds. The baseline values were adjusted to derive KBRA’s Baseline Recovery Proceeds, reflective of the following, as and where applicable: KBRA’s stressed resolution path and timeline, NOI captured from defaulted and REO assets, carry costs for non-income producing assets, legal and foreclosure costs, property sales costs, deferred maintenance, and accrued unpaid taxes. The baseline recovery proceeds were stressed further to determine higher level investment grade stresses. The resulting proceeds were applied to the transaction waterfall to determine our credit rating. Overall, KBRA’s baseline recovery amounts were 32.2% of the UPB, 89.2% of Rialto’s acquisition basis, and 61.7% of Rialto’s projected net recovery amounts.

For complete details on the analysis, please see our presale report, RIAL, Series 2014-LT5 published at www.krollbondratings.com.

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 final ratings that differ from the preliminary ratings.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).