Single-asset transaction

In particular, many investors take comfort from a well-diversified multiborrower portfolio and seek to limit the concentration of risks associated with a single-asset transaction. While this approach is understandable and relevant to senior bondholders, this diversification is not necessarily beneficial to junior noteholders who are then exposed to potential losses across the entire portfolio. 

A commercial property based whole business securitisation, where a portfolio of properties generates the principal revenues in support of the business. Deals such as pub or healthcare transactions typically fall into this category. Such deals can range from a single asset to the highly diversified portfolio (by number if not by industry exposure). 

The previous discussion has centred on some of the key credit areas for investors analysing multiborrower CMBS transactions. While much of this also applies to single-property transactions, the analysis necessary for these transactions differs significantly in its detail. Listed below are some of the key additional areas we believe investors should consider when analysing a single-asset deal ... 

Investing in CMBS, whether they are single-asset or multiborrower transactions, requires an appreciation of the nature of the underlying properties and the inherent sensitivities of the cash flows they generate. The type and extent of analysis undertaken should be tailored to reflect the characteristics of the collateral pool and also whether the proposed investment is at a senior or junior level in the capital structure. 

Since accounting records must always show a balance between assets and equities, any single transaction must affect both assets and equities. Each debit entry, therefore, requires an equal and offsetting credit entry. For example, if a company purchased a piece of equipment by a cash payment, the assets of the company would be increased by the value of the equipment. This represents an addition to the account, and would therefore, be listed as a debit. However, the company had to pay out cash to obtain the equipment. This payment must be recorded as a credit entry, since it represents a deduction from the account. At least one debit entry and one credit entry must be made for each business... 

Different techniques are necessary when analysing a large multiborrower CMBS transaction compared to one secured over a single or limited number of assets. This is reflected in the following sections, which briefly describe some of the more important factors in these analyses. In practice, a transaction may include a large number of loans but with significant exposure to a few valuable properties, in which case a combination of techniques will be most appropriate. 

The multiproperty nonconduit structure is useful for originators with large pools of assets that do not expect to tap the market frequently. This differs from the single-borrower, multiproperty structure only in terms of how often it issues. It has more in common with a single-issuer, residential MBS transaction than with the conduit structure, with the added features of cross-collateralization and cross-default. 

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