High Spreads in $1B Atlantis CMBS Issuance



The $1 billion Atlantis CMBS offering, collateralized by a single, 245-acre, 2,917-room resort property located in Paradise Island, Bahamas, exhibits higher than normal spreads for its fixed-rate AAA-class certificates, due in part to corresponding risk, Mortgage Observer has learned.

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BREF ONE LLC’s Series A, a fund affiliated with a subsidiary of Brookfield Asset Management, sponsored the $1 billion mortgage for the resort, according to a Standard & Poor’s pre-sales report, released Aug. 4. The loan, divided into a $650 million fixed-rate and $350 million floating-rate component, was provided by Deutsche BankMorgan Stanley and Citigroup.

A difference in spread between the fixed rate, AAA class certificates from the Atlantis CMBS and those of recent, comparable issuances can be attributed in part to the fact that Atlantis is a standalone collateral property, according to an analyst familiar with the transactions. Comparable issuances—of a similar size and vintage—but with lower spreads, were either secured by a multi- property portfolio or a single property collateral that is located in the U.S., the analyst said.

Yield for the Atlantis fixed-rate, AAA-class certificates is 3.61 percent.

Greater risk associated with the Atlantis CMBS, and other transactions, gives way to higher spreads for investors, the source noted.

Other risk factors include the highly leveraged loan balance (LTV of 89.9 percent), which takes into account an additional $750 million in mezzanine loans, along with a higher refinance risk as the loan is interest-only for it’s entire seven-year term, said the Standard & Poor’s pre-sale report.

The Atlantis CMBS, however, has credit enhancement ranging from 15.33 percent for its fixed-rate, BB-class certificates to 53.61 for its fixed-rate, AAA-class certificates. Higher credit enhancement, or “protection from losses” may explain why a certain class is “priced tighter” or has a lower spread, according to an analyst familiar with the transaction, which can be seen particularly  in the Atlantis BBB-class,which is priced at“s[waps]+325bps,” as compared to a recent issuance of BBB-class at “s + 370 bps.”

BREF acquired Atlantis through a deed in lieu of foreclosure in 2012 following the inability of the Kerzner International Portfolio Loan to be refinanced at maturity in 2011, according to a Kroll pre-sales report.