FirstKey Prices Second Ever Multiborrower Rental Securitization










FirstKey Lending priced a $241 million securitization of fixed-rate loans it made to landlords for the purchase of single-family homes.

The senior tranche of 3.86-year, class A-1 notes, rated triple-A by Moody’s Investors Service, Morningstar and Kroll Bond Ratings Agency, pays 115 basis points over interpolated swaps, for a yield of 2.4%, according to a pricing document.

That’s less than the 2.5% that B2R Finance pays on the triple-A rated class A-1 notes of its inaugural deal, which has a longer tenor of 4.33 years. B2R’s deal priced last week.

FirstKey Lending’s senior notes benefit from higher credit support of 37.75%, above the 33.7% subordination on the senior notes offered by B2R Finance. This may have been necessary to secure a triple-A rating, since FirstKey’s transaction is backed by a more concentrated pool of loans — just 16 made to 10 borrowers. By comparison B2R’s transaction pools 144 loans.

All of the tranches issued under the FirstKey transaction are structured with tenors between four to five years. The most subordinate tranche, which is the five-year, triple-B minus, class E notes rated only by Morningstar, pays 335 basis points over interpolated swaps, for a yield of 4.8%. By contrast B2R issued longer dated paper across the capital structure and priced the triple-B minus, 10-year, class E notes at 350 basis points, for a yield of 5.4%.

The loans backing the FirstKey deal range in size from $2.9 million to $51.3 million and the largest loan in the pool, sponsored by American Homes 4 Rent, represents 21.3% of the pool. Proceeds from the loan were used for property acquisition. American Homes 4 Rent is also an originator in this sector, having issued four single-borrower SFR securitizations. Its most recent deal, AH4R SFR 2015-1, priced in February.

In total the loans pooled in FirstKey Lending’s multiborrower SFR securitization will be secured by 3,628 of mostly single-family homes. Compared to the previous 16 single-borrower SFR transactions, the homes are smaller and older. All else being equal, Kroll considers smaller, older homes a harder sell in an event of a default, since they may be less desirable to potential purchasers.

The homes also bring in less rental cash flow compared to previous single-borrower SFR deals. The weighted average monthly rent for the leased properties is approximately $1,151, lower than the $1,522 average for the homes in previous single-borrower SFR transactions. The weighted average rents for those transactions ranged from $1,187 to $1,807.

Most of the homes are located in Florida (26.8%), Georgia (19.3%) and California (14.2%).

The transaction is less levered than previous single-borrower SFR deals, with a loan to value ratio of 63.1% compared to an average 72.7% for previous transactions. Lower leverage generally implies greater borrower equity, lower likelihood of default, and lower overall loss severity following an event of default.

FirstKey Lending was formed in the first half of 2013 to originate, finance and/or securitize mortgage loans primarily secured by portfolios of one-to-four family rental properties. The issuer has originated approximately $599 million of single-family rental loans to approximately 99 borrowers. It offers loans from two single-family rental lending programs: Premier and Express. The Express program targets borrowers who require loans of up to $5 million, while the Premier product is geared to borrowers who require financing in excess of $5 million.

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