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Insurer's $259.7M CMBS deal small but significant

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Insurer's $259.7M CMBS deal small but significant

Withits first-ever CMBS deal, an insurance group is venturing into an area of structuredfinance that has been characterized by sluggish issuance volume to date in 2016in a challenging capital markets environment.

FitchRatings said May 10 that it plans to rate several classes of the $259.7 millionin mortgage pass-through certificates to be issued by Assurant Commercial MortgageTrust 2016-1. The certificates are backed by commercial mortgages originated bycertain subsidiaries of Assurant Inc.

The AssurantCommercial Mortgage Trust 2016-1 pool contains 79 commercial mortgage loans on 89office, multifamily, retail, industrial and mixed-use properties with a weighted-averageinterest rate of 4.71%, weighted-average loan-to-value ratio of 42.5% and debt servicecoverage ratio of 2.03, according to a Fitch presale report. The loans have weighed-averageseasoning of nearly 44.8 months, well above the levels that Fitch has observed forsimilar private-label, multiborrower CMBS pools in recent years. The transactionis also much smaller than the comparable transactions.

The ratingagency noted that Assurant had not originated the loans with intent to securitizethem. That comes in contrast to the loans backing many of the comparable transactions,many of which had been sponsored by Wall Street conduits. The insurer engages incorrespondent-based lending that uses the third-party agents in the acquisitionof new mortgage assets on its behalf, Fitch said.

The deal'ssponsors, originators and sellers include AmericanMemorial Life Insurance Co., UnionSecurity Insurance Co., AmericanSecurity Insurance Co., AmericanBankers Insurance Co. of Florida, United Service Protection Corp., Standard Guaranty Insurance Co., Federal Warranty Service Corp. and American Bankers Life Assurance Co. of Florida. The depositor,Assurant Commercial Mortgage Depositor LLC, listed Assurant Executive Vice Presidentand Chief Investment Officer Eric Greenman as its president in a recent SEC filing.

An Assurantspokeswoman said the company does not comment on pending transactions.

Assurantreported holding $872.2million in commercial mortgage loans at amortized cost as of March 31, representing7.6% of total investments, down from $1.15 billion, or 8.9% of total investments,on Dec. 31, 2015. Approximately 42% of the outstanding principal balance of thecommercial mortgages as of March 31 related to properties in California, New Yorkand Oregon. Nearly 96% of the mortgage loans had loan-to-value ratios of 70% orless as of March 31, and the debt service coverage ratio for the portfolio overallwas 1.97.

Unaffiliatedmortgage loans constituted 9% of gross unaffiliated cash and invested assets forAssurant's U.S.-domiciled property and casualty units as of Dec. 31, 2015, up from7.4% a year earlier and the third highest in the industry among SNL P&C groupsand top-tier P&C entities with assets of $1 billion or more, behind only captive and the Indiana Farm Bureau Inc.group of companies.

Assurant'sU.S.-domiciled life entities, meanwhile, had unaffiliated mortgage loans of nearly9.8% of gross unaffiliated cash and invested assets as of Dec. 31, 2015, down fromnearly 12.1% a year earlier and below the U.S. life industry's overall rate of concentrationin the asset class of 11.3%.

A reviewof loan-level data reported by Fitch and data regarding the mortgage loans heldby Assurant's U.S. P&C and life units in SNL's insurance investment holdingsdatabase finds that the Assurant Commercial Mortgage Trust 2016-1 pool appears tocontain several of the largest individual mortgage loan positions held by the P&Cand life groups on a combined basis as of Dec. 31, 2015. The reported book valueof those individual positions topped out at $12.9 million among the life companiesand $7.1 million among the P&C companies.

The SNLdata does not provide information regarding the name of the borrower, but certainother data points regarding the individual loans, such as interest rate, originationand maturity date, city, and type of property, matched those contained in the Fitchpresale report.

The largestloan in the CMBS pool as measured by the Fitch-reported cutoff-date balance wasa $12.7 million loan involving Stonebriar Apartments in Bend, Ore. The loan hada balance of $12.7 million, and it matures in January 2025. American Memorial Lifereported holding a $12.8 million loan on a Bend apartment/multifamily loan withthe same maturity date.

The inauguralAssurant deal, expected to close May 31, comes to market following a period in whichCMBS issuance has sputtered. Data reported by the Securities Industry and FinancialMarkets Association put U.S. CMBS issuance at $17.6 billion through the first fourmonths of 2016, down sharply from volume of $36.3 billion in the year-earlier period.Other sources put issuance volume at a somewhat higher dollar value for the periodbut still at levels well below those recorded in early 2015.

Executivesat various bank and nonbank lenders, including the likes of Starwood Property Trust Inc., CIT Group Inc. and TwoHarbors Investment Corp., referenced dislocation in the CMBS marketsduring first-quarter earnings calls, but AnnalyCapital Management Inc. officials commented May 5 that CMBS spreads had largely reversed awidening trend that had begun in the summer of 2015 during the previous 60 days.

"Currentmarket conditions are more stable, and activity levels are beginning to increaseonce again," John Jardine, president and co-CEO of Ares Commercial Real Estate Corp. said during a May 5 .

Two Harborsexecutives said during a callthe same day that CMBS market "disarray" has led to greater borrower demandfor financing from balance sheet lenders like the mortgage REIT's commercial realestate platform. That group would also, in theory, incorporate banks and insurancecompanies.

Surveydata tabulated by the Mortgage Bankers Association found a 19% year-over-year declinein the origination volume index for CMBS conduits in the first quarter, while theindex for life insurers declined only 1% year over year. The origination volumeindex for commercial banks, meanwhile, soared 44%.