Kroll Bond Rating Agency Assigns Preliminary Ratings to Annaly 2014-FL1

Kroll Bond Rating Agency (KBRA) is pleased to announce the assignment of preliminary ratings to seven classes of Annaly 2014-FL1, a $399.5 million floating rate CMBS transaction (see ratings listed below).

The collateral for the transaction consists of ten first lien mortgage loans secured by a total of 23 properties. The loans have principal balances ranging from $9.3 million to $115.0 million for the largest loan in the pool, which is secured by Optima Chicago (28.8%). Optima Chicago is a 42-story, 325-unit, Class-A, high-rise multifamily complex located on a 0.34 acre site in the Chicago, Illinois CBD. Construction on the project was completed in November 2013 and as of December 2013 the apartment units were 33.2% leased. The five largest loans also include Ritz Carlton - Denver (12.8%), Optima Sonoran (12.2%), Alameda (11.6%) and Atrium One (9.6%), and represent 74.9% of the initial pool balance. Eight loans (88.1%) are secured by the borrowers' fee simple interests in the related properties and two loans (11.9%) are secured by the borrowers' fee simple and leasehold interests. The mortgaged properties are located in nine states with four state concentrations that each represents more than 10.0% of the pool balance: Illinois (28.8%), Colorado (12.8%), Arizona (12.2%) and Texas (11.6%). There is also exposure to two property types with concentrations in excess of 15.0%: Multifamily (41.0%) and Hospitality (24.0%).

KBRA's analysis of the transaction involved a detailed evaluation of the underlying cash flows using our CMBS Property Evaluation Guidelines and the application of our CMBS Single-Borrower & Large Loan Rating Methodology. The results of the analysis yielded KNCF for the underlying collateral properties that was, on average, 13.3% less than issuer stabilized cash flow. KBRA applied our stressed capitalization rates to KNCF to arrive at valuations of the underlying properties, some of which were in a period of transition as they were recently completed or in the process of being upgraded. The KBRA values were, on average, 35.2% less than the appraiser's as is valuation and 43.1% less than the appraiser's stabilized value. The resulting KBRA in-trust Loan to Value (KLTV) for the pool was 113.4%, and the all-in KLTV was 115.8%. In our analysis of the transaction, we also reviewed and considered third party engineering and environmental reports, our analyst's site visits of the collateral properties, as well as the transaction structure.

The transaction employs a modified sequential payment structure whereby principal proceeds from the aforementioned Optima Chicago loan will be distributed on a pro-rata basis to all of the pooled classes, unless a sequential payment event occurs. The circumstances under which such an event will incur include, among other things, the failure of the related borrower to make two consecutive debt service payments or pay the loan's balloon amount at maturity, or if the total outstanding trust balance is less than 50% of the original securitized balance. Principal from the remaining loans is paid sequentially, as is interest for all of the loans that serve as transaction collateral. Any losses that arise from the transaction will be allocated to the capital structure in reverse sequential order.

For complete details on the analysis, please see our Presale Report, Annaly 2014-FL1, published today at www.krollbondratings.com. The preliminary ratings are based on information known to KBRA at the time of this publication. Information received subsequent to this release could result in the assignment of final ratings that differ from the preliminary ratings.

Preliminary Ratings Assigned: Annaly 2014-FL1
Class		Balance		Credit Enhancement		Expected Rating
A		$178,794,000		55.250%		AAA(sf)
X(1)		$260,700,000		N/A		AAA(sf)
B		$25,471,000		48.875%		AA-(sf)
C		$17,480,000		44.500%		A-(sf)
D		$38,955,000		34.750%		BBB-(sf)
E		$24,971,000		28.500%		BB(sf)
F		$35,460,000		19.625%		B(sf)
G		$78,410,000		0.000%		NR
1 Notional balance equal to the aggregate outstanding balance of the Class A, B, C, and D certificates.

17g-7 Disclosure

All Nationally Recognized Statistical Rating Organizations are required, pursuant to SEC Rule 17g-7, to provide a description of a transaction's representations, warranties and enforcement mechanisms that are available to investors when issuing credit ratings. KBRA's disclosure for this transaction can be found in the report entitled CMBS: Annaly 2014-FL1 17g-7 Disclosure Report.

Related publications (available at www.krollbondratings.com):

CMBS: Single Borrower & Large Loan Rating Methodology, published August 8, 2011

CMBS Property Evaluation Guidelines, published June 10, 2011

Kroll Bond Rating Agency
Michael Brown, 646-731-2307
[e-mail]
or
Nitin Bhasin, 646-731-2334
[e-mail]
or
Robin Regan, 646-731-2358
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