Fitch to Rate Lone Star Portfolio Trust 2015-LSP; Presale Issued

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has issued a presale report on Lone Star Portfolio Trust 2015-LSP Commercial Mortgage Pass-Through Certificates, Series 2015-LSP.

Fitch expects to rate the transaction and assign Rating Outlooks as follows:

--$100,000,000 class A-1A1 'AAAsf'; Outlook Stable;

--$234,000,000 class A-1A2 'AAAsf'; Outlook Stable;

--$440,262,880a class X-CP 'BBB-sf'; Outlook Stable;

--$516,000,000a class X-EXT 'BBB-sf'; Outlook Stable;

--$69,000,000 class B 'AA-sf'; Outlook Stable;

--$47,000,000 class C 'A-sf'; Outlook Stable;

--$66,000,000 class D 'BBB-sf'; Outlook Stable;

--$114,000,000 class E 'BB-sf'; Outlook Stable;

--$75,325,872 class F 'B-sf'; Outlook Stable.

a - Notional amount and interest-only.

The expected ratings are based upon information provided as of Oct. 26, 2015.

The certificates represent the beneficial interest in a trust that holds a three-year, floating-rate, interest-only initial term loan in the original amount of $708 million and an outstanding balance of $705 million. The mortgage loan is secured by the fee and leasehold interests in 92 office and 11 industrial properties totaling 10.4 million square feet (sf) located in 18 states in primarily suburban locations.

The loan is sponsored by Lone Star Real Estate Fund IV (U.S.), L.P. (Lone Star).

KEY RATING DRIVERS

High Fitch Leverage: The $705 million loan has a Fitch debt service coverage ratio (DSCR) and loan-to-value (LTV) of 1.01x and 91.8%, respectively, totaling $68 per sf (psf). The portfolio was recently acquired for a total cost of $1.056 billion ($102 psf), implying a loan-to-cost ratio of 66.8%.

Below-Market Occupancy: The portfolio's weighted average (WA) occupancy is 79.6%, including six vacant properties, compared with the WA market occupancy of 88.3% (CoStar). Lone Star intends to perform certain capital improvements and lease up the portfolio to market occupancy prior to a property-by-property disposition strategy.

Geographically Diverse and Granular Pool: The loan is secured by 92 office and 11 industrial assets located in 18 states in generally suburban locations. The three states with the greatest concentration are Illinois (19.9% of allocated loan amount [ALA]), Massachusetts (18.8%) and Minnesota (18.1%); no other state represents more than 10.7% by ALA.

RATING SENSITIVITIES

Fitch found that the property could withstand a 68.9% decline in value and an approximate 67.1% decline in Fitch's implied net cash flow prior to experiencing $1 of loss to the 'AAAsf' rated class. Fitch performed several stress scenarios in which the Fitch net cash flow (NCF) was stressed. Fitch determined that a 63.1% reduction in Fitch's implied NCF would cause the notes to break even at a 1.0x DSCR, based on the actual debt service.

Fitch evaluated the sensitivity of the ratings for classes A-1A1 and A-1A2 and found that a 7% decline in Fitch's implied NCF would result in a one-category downgrade, while a 36% decline would result in a downgrade to below investment grade.

The Rating Sensitivity section in the presale report includes a detailed explanation of additional stresses and sensitivities. Key Rating Drivers and Rating Sensitivities are further described in the accompanying presale report. The presale report is available to all investors on Fitch's web site 'www.fitchratings.com'.

DUE DILIGENCE USAGE

Fitch was provided with third-party due diligence information from Ernst & Young LLP. The third-party due diligence information was provided on Form ABS Due Diligence-15E and focused on a comparison and re-computation of certain characteristics with respect to the mortgage loan and related mortgaged properties in the data file. Fitch considered this information in its analysis and the findings did not have an impact on our analysis. A copy of the ABS Due Diligence Form-15E received by Fitch in connection with this transaction may be obtained through the link contained on the bottom of the related rating action commentary (RAC).

Additional information is available at www.fitchratings.com.

Lone Star Portfolio Trust 2015-LSP (US CMBS)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873208

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Analyzing Large Loans in U.S. Commercial Mortgage Transactions (pub. 27 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870009

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for U.S. Commercial Mortgage Servicers (pub. 14 Feb 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735382

Related Research

Lone Star Portfolio Trust 2015-LSP - Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873277

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993614

ABS Due Diligence Form 15E 1https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=993614&flm_nm=15e_993614_1.pdf

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993614

Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20151106005992/en/

Fitch Ratings
Primary Analyst
Adam J. Ott, +1-312-368-2094
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Abigail Kagan, +1-212-908-0516
Associate Director
or
Committee Chairperson
Daniel Chambers, +1-212-908-0782
Managing Director
or
Media Relations, New York
Sandro Scenga, +1-212-908-0278
[email protected]

Source: Fitch Ratings

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