KBRA Assigns Preliminary Ratings to Caesars Palace Las Vegas Trust 2017-VICI

NEW YORK--(BUSINESS WIRE)-- Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to nine classes of Caesars Palace Las Vegas Trust 2017-VICI, a $1.6 billion CMBS single-asset, single-borrower transaction.

The collateral for the securitization is a $1.6 billion non-recourse, first lien, fixed-rate mortgage loan secured by the borrower’s fee interest in the Caesars Palace Las Vegas (“CPLV”) (and leasehold interest in one hotel tower on the property), which is located on approximately 80.1 acres of prime property along the Las Vegas Strip. As part of Caesar’s Chapter 11 restructuring plan and recent emergence from bankruptcy, an OpCo/PropCo structure was utilized. The real property assets of Caesar’s Entertainment Operating Company, Inc. (the entity that filed for bankruptcy protection) were transferred to the loan sponsor, VICI Properties, Inc. and its affiliates, including the borrower (“PropCo”). CEOC, LLC (“OpCo”), a subsidiary of Caesars Entertainment Company, immediately leased back the CPLV property and improvements under a triple net master lease. OpCo 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 OpCo under the CPLV master lease. The borrower is entitled to an annual master lease base rent of $165.0 million for the initial seven years of the CPLV lease term, subject to adjustment thereafter using a formula consisting of a base rent component and a percentage rent component.

KBRA used a look-through analysis of the transaction which included a “look-through” to the cash flow and value from the property operations using our CMBS Property Evaluation Methodology and the application of our CMBS Single Borrower and Large Loan Rating Methodology, as well as an analysis of the cash flow from the master lease payments. The results of our look-through analysis yielded a KBRA net cash flow (KNCF) for the property of $231.5 million. To value the property operations, KBRA applied a capitalization rate of 11.25% for the hotel and casino revenues and a 7.00% capitalization rate for the Forum Shops ground rent, before a 7.0% downward adjustment to account for the costs associated with a potential foreclosure. KBRA arrived at a value of approximately $2.0 billion and a KBRA Loan to Value (KLTV) of 78.7%. In our analysis of the transaction, we considered the third-party engineering, environmental, and appraisal reports; management agreements; the results of our site inspection; and legal documentation.

For further details on KBRA’s analysis, please see our Pre-Sale Report, Caesars Palace Las Vegas Trust 2017-VICI, which was published today at www.kbra.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 ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: Caesars Palace Las Vegas Trust 2017-VICI

Class				Expected KBRA Rating				Balance (US$)
A				AAA(sf)				$535,500,000
X-A				AAA(sf)				$535,500,000	*
B				AA+(sf)				$200,500,000
C				AA-(sf)				$142,600,000
X-B				AAA(sf)				$343,100,000	*
D				BBB+(sf)				$206,700,000
E				BB(sf)				$312,300,000
F				BB(sf)				$61,000,000
HRR**				BB-(sf)				$91,400,000

* Notional balance** To satisfy the US risk retention requirements, a third party purchaser will purchase and retain an “eligible horizontal residual interest” consisting of the Class HRR certificates, representing 5.0% of the fair value of all non-residual interests issued, determined in accordance with GAAP.

Representations & Warranties Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction’s representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA’s disclosure for this transaction can be found in the report available here: Caesars Palace Las Vegas Trust 2017-VICI Representations & Warranties Disclosure.

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

• CMBS Pre-Sale Report: Caesars Palace Las Vegas Trust 2017-VICI
• CMBS Property Evaluation Methodology
• CMBS Single Borrower and Large Loan Rating Methodology
• Methodology for Rating Interest-Only Certificates in CMBS Transactions

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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).

View source version on businesswire.com: http://www.businesswire.com/news/home/20171107006890/en/

Kroll Bond Rating Agency
Analytical:
Laura Wolinsky, 646-731-2379
Director
[email protected]
or
Robin Regan, 646-731-2358
Managing Director
[email protected]
or
Michael B. Brown, 646-731-2307
Senior Director
[email protected]
or
Keith Kockenmeister, 646-731-2349
Managing Director
[email protected]

Source: Kroll Bond Rating Agency

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