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You will analyze the transactions and report to your portfolio lead on the statu

by | Jul 29, 2022 | Business Studies | 0 comments

 

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You will analyze the transactions and report to your portfolio lead on the status of the deals. You already own the transactions and are updating leadership on your current views.
• The premise of the assignment is that you own CMBS, SASB, and CRE CLO bonds which was already securitized. You will be using tools such as Trepp Data, the original Prospectus, and the original Presale report prepared by one of the rating agencies. You own Single A rated bonds (the bonds that were originally rated single A when they were originally sold) from each of the deals.
• Each team has been assigned three or four deals (depending on group size). The idea is to study the securitizations, and report back on performance. Given the recent changes (interest rates, inflation, supply chain, geopolitical risk) in the markets, what are your views on capital markets risk in those deals. Support your opinions based on your views of the current market. Your memo should be in the 30+/- page range plus any addenda you feel relevant.
• The document should be written as a memo in a professional environment, not an academic paper double spaced.
• The purposes of this assignment are
o To give you the opportunity see “real” deals in the market.
o To sharpen your written skills. Be crisp; know what you’re going to say.
• The memo is to be written to your investment committee, highlighting your analysis and conclusions. Start with an executive summary briefly summarizing key elements of each of the deals. Follow up with a current state of the market in CMB Conduit, CRE CLO and SASB (4-page summary view of the current market activity, volume, defaults, etc.). State your conclusion up front, and then support your analysis in the body of the memo. Avoid information that isn’t relevant to your analysis and conclusions. Don’t repeat what is in the documents you have reviewed, think through, analyze the deals, and come up with your own opinions.
• You should create your own charts and tables and eliminate cut and paste.
• Please review the PDF posted on Classes entitled How to write an effective credit memo for some general guidance. Focus on the front section of this document.
The example is useful but more in-depth that I am asking of you.
A few pieces of information:
• I recommend that each team select a member to coordinate the workload.
• Each member of the team will receive the same grade for the memo portion of
the assignment. Real Estate Capital Markets is a Tier III course, and none of you needs to be propped up by your fellow students. I also acknowledge that giving each team member the same grade has some element of unfairness, since it’s impossible that the contributions to the project are exactly equal. Highlight the components that each team member prepared to identify any inconsistent participation or effort.

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• The presentation portion of the assignment will be more individually graded. Your participation in the discussion, the portion of the presentation that you deliver, and the comments from your fellow teammates.
• We will be scheduling meetings with each team to discuss the project and the expectations.
Below is a list of some things to incorporate when preparing your memo. While there are items listed here for you to cover, please don’t feel constrained in the content or the style. These are minimum standards, so you can freely raise the level of your analysis.
• Discuss the top 10 loans of each deal and describe any concerns that you may have (leverage, value trends, markets, borrower, anything that is a risk that you are considering). Are mitigants discussed for these risks?
• Using data from Trepp, please discuss in detail what has happened to the transactions (loan defaults, credit changes like a retail closure) since the securitization. How does the current loan performance based on Trepp data compare with performance at origination? How many loans requested forbearance? Modified? Describe and summarize your observations.
• Please discuss in detail, the (stratification) composition of the securitizations by asset type (retail, hotel, multi, etc.). How much of each asset type does your deal have? Describe the risks and mitigants of these property type stratifications and how you consider this in your recommendations.
• What is the pool LTV and what is the pool DSCR per both the issuer and rating agencies? Make sure you consider additional debt outside of the transactions, including subordinate debt (B Notes) and Mezzanine loans. How different are the issuer and the RA metrics?
• Highlight any loans that were given a shadow rating by RAs. What was the rating? What does this mean? Who determines which loans are credit rated?
• Does the collateral pool contain any ‘A’ notes of A/B structure loans? If so, could you find out what happened to the B notes?
• What percent of the loans in the collateral pool now have, or allow in the future, subordinate financing? What form of subordinate financing is allowed?

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Suggested outline for your memo

• Cover page with the deals considered and your names.
• Table of contents (page numbers and section headings)
• Executive Summary (What process did you undertake in your analysis at a high
level, what are the key takeaways of each deal, what drove your ultimate opinion
about each type of deal and what were your conclusions?)
• CMBS Capital Markets Overview (pricing trends for loans and bonds) o Conduit Market
o SASB Market
o CRE CLO Market
• Conduit Deals and CRE CLO’s
▪ Overall deal discussion and summary (# loans, total size, etc.)
▪ Brief description of the Top 10 loans (a chart is)
▪ Strengths, weaknesses, current performance, risks, mitigants, etc. ▪ Any concerns about the assets in the near and long term?
▪ Defaults, forbearance, modifications, watch list
o Loan asset sector composition (retail, hotels, office, etc.)
▪ Strengths, weaknesses, current performance, risks, mitigants, etc. ▪ How have the sectors performed vs original securitization?
▪ What concerns do you have about the sectors near and long term? ▪ Defaults, forbearance, modifications, watch list
▪ Conclusions for each sector and overall comment on the asset mix. o Par Passu discussion (how many loans? How many deals have the loan
pieces been put into? Describe the deal, performance, risks and mitigants. o Overall deal risks and mitigants
o Conclusions (overall commentary on each deal)
• SASB Deals
o Overall deal discussion and summary (# properties, total size, etc.)
o Strengths, weaknesses, current performance, risks, mitigants, etc.
o How has the loan/properties performed vs original securitization?
o What concerns do you have about the asset(s) in the long term? Consider
the impact of rates, inflation, supply chain, e-commerce, travel etc. o View on sector performance (i.e., Office sector if it is an office deal) o Pari Passu notes – how many notes outside of the SASB deal if any? o Structural features (reserves, fixed vs floating, other)
o Overall deal risks and mitigants
• Final Takeaways – Conduit, CRE-CLO & SASB update to the Portfolio manager
• Addenda: Any tables, additional data, etc. not included in the body of the memo.

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