Research: Rating Action: Moody’s assigns a rating to one class of notes issued by Ready Capital Mortgage Financing 2022-FL10, LLC

New York, October 19, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a rating to one class of notes issued by Ready Capital Mortgage Financing 2022-FL10, LLC (the “Issuer”) as follows:

Cl. A, Definitive Rating Assigned Aaa (sf)

The Cl. A notes are referred to herein as the “Rated Notes.”

RATINGS RATIONALE

The rationale for the rating is based on our methodology and considers all relevant risks, particularly those associated with the CRE CLO’s portfolio and structure.

Ready Capital Mortgage Financing 2022-FL10, LLC is cash flow commercial real estate CLO (“CRE CLO”) that does not have a reinvestment option. The closing date pool is collateralized by 54 commercial real estate loans in the forms of whole loans, senior participation interests and pari passu participation interests on 85 properties. The total par amount at closing is $860,067,751. The assets are floating rate with a 4.14% weighted average spread (WAS). Approximately 63.3% of the closing date pool assets are indexed to compounded SOFR while the remaining 36.7% are indexed to 30-day term SOFR. Additionally, 95.5% of the assets have index rate floors and rate caps in place. The notes on the transaction are floating rate indexed to 30-day term SOFR. Moody’s considered this in its analysis.

The transaction provides for a companion loan acquisition period of 2 years, whereby principal from scheduled amortization and prepayments only, subject to collateral and transaction performance metrics, may be used to purchase up to $90.0 million of companion participations with respect to certain eligible pari passu participations associated with the closing date collateral pool. The companion participations are initially in the form of future funding and, once funded, may be acquired within this mechanism. After the replenishment period expires, all principal pre-payments will be used to pay down the notes in order of seniority.

The transaction also provides for criteria-based loan modifications that are limited to 8 modifications, and may include: (i) a change in interest rate; (ii) a delay in the required timing of any payment of principal for any amortization or other principal reduction; (iii) the indirect owners of the related borrower incurring additional indebtedness in the form of a mezzanine loan or preferred equity; and (iv) a change of maturity date or extended maturity date. Multiple simultaneous modifications to a single loan will be treated as a single criteria based modification. Moody’s has factored this into its analysis.

The transaction closed on October 19, 2022.

The closing date pool has a Moody’s weighted average loan-to-value (LTV) ratio of 131.1%. Approximately 95.2% of the pool were acquisition financing loans, 3.1% were refinancing loans and 1.7% of the pool were originated in connection with the acquisition and the refinancing of a previous mortgage loan. The property type exposures are multifamily at 92.0% and industrial at 8.0%. The top 10 assets (38.0% of the initial loan pool) and their respective property type and Moody’s LTV are as follows:

1) Avery Oaks Apartments – Multifamily – 137.3%; 2) Hite and Notch – Multifamily – 128.0%; 3) Flats at Arrowood and Ivy Hollow – Multifamily – 137.4%; 4) Mission Matthews Place and Waterford Hills – Multifamily – 136.8%; 5) Cambridge and Courtyard Apartments – Multifamily – 126.6%; 6) The Vicinity – Multifamily – 130.2%; 7) Forest Ridge – Multifamily – 124.5%; 8) Prime at Lake Highlands – Multifamily – 124.5%; 9) Park West Apartments – Multifamily – 138.2% and 10) Waldan Pond Apartments – Multifamily – 135.4%.

Ready Capital Corporation (“Ready Capital”) will administer the CRE CLO. Ready Capital Corporation (formerly known as Sutherland Asset Management Corporation) is a publicly traded REIT incorporated in Maryland. As of 30 June 2022, Ready Capital Corporation managed approximately $10.6 billion of assets. This is their tenth Moody’s rated CRE CLO transaction. KeyBank National Association will act as servicer, special servicer and advancing agent. They will provide servicing to the collateral interests during the lifecycle of the transaction. U.S. Bank Trust Company, National Association will serve as trustee and backup advancing agent on the underlying collateral. Park Bridge Lender Services LLC will act as operating advisor.

In addition to the Rated Notes, the Issuer will issue eight classes of subordinated notes.

The transaction incorporates interest and par coverage tests which, if triggered, divert interest proceeds to pay down the notes in order of seniority.

Moody’s has identified the following parameters as key indicators of the expected loss within CRE CLO transactions: weighted average rating factor (WARF), a primary measure of credit quality with credit assessments completed for all of the collateral, weighted average life (WAL), weighted average recovery rate (WARR), number of asset obligors; and pair-wise asset correlation. These parameters are typically modeled as actual parameters for static deals and as covenants for managed deals.

For modeling purposes, Moody’s used the following base-case assumptions:

Par amount: $860,067,751

Number of obligors: 54; largest single obligor $90,000,000; 36 Herf

Weighted Average Rating Factor (WARF): 4809

Weighted Average Recovery Rate (WARR): 60.0%

Weighted Average Life (WAL): 4.46 years

Weighted Average Spread (WAS): 4.14%

Weighted Average Coupon (WAC): n/a

Pair-wise asset correlation: 35.0%

Methodology Underlying the Rating Action:

The principal methodology used in this rating was “Moody’s Approach to Rating SF CDOs” published in June 2021 and available at https://ratings.moodys.com/api/rmc-documents/72732. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Factors That Would Lead to an Upgrade or Downgrade of the Rating:

The performance of the Rated Notes is subject to uncertainty. The performance of the Rated Notes is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The administrator’s investment decisions and management of the transaction will also affect the performance of the Rated Notes.

Together with the set of modeling assumptions above, Moody’s conducted an additional sensitivity analysis, which was a component in determining the rating assigned to the Rated Notes. This sensitivity analysis includes increased default probability relative to the base-case.

Primary sources of assumption uncertainty are the extent of growth in the current macroeconomic environment.

REGULATORY DISCLOSURES

For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on https://ratings.moodys.com/documents/PBS_1346447.

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody’s determines based on its assessment of the collateral characteristics. Moody’s then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody’s weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody’s weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Tulay Sangiray
Asst Vice President – Analyst
Structured Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Deryk Meherik
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653