New Player Enters CRE CDO Market

There’s a new kid on the commercial real estate collateralized debt obligations block. Petra CRE CDO 2007-1 is expected to close June 7 on its first commercial real estate collateralized debt obligation (CRE CDO), according to Derivative Fitch, part of Fitch Ratings. The initial portfolio amount of $698.6 million amounts to just less than 70% of the target portfolio amount, and the company expects to ramp that up to 80% of the target amount by the closing date.

The collateral manager, Petra Capital Management LLC, will select and monitor assets for the transaction. The initial portfolio will consist of commercial mortgage whole loans and A notes, commercial mortgage B notes, and commercial real estate mezzanine loans.

The co-issuers are Petra CRE CDO 2007-1 Ltd., a Cayman Islands exempt company, and Petra CRE CDO 2007-1 Corp., a Delaware corporation. The companies will be incorporated to issue floating-rate notes and preferred shares secured by commercial real estate debt.

Other parties to the transaction include lead manager Greenwich Capital Markets Inc., co-lead manager Goldman Sachs & Co., and trustee Wells Fargo Bank.

Among the new CDO’s strengths are loans secured by high-quality properties or portfolios of properties, and 76% of the initial pool is composed of whole loans and A notes, which take priority within each loan’s capital structure, according to Fitch.

Concerns, Fitch reports, include Petra’s lack of experience with CRE CDOs; a 33% concentration of B notes and mezzanine debt in the pool; and the fact that 38.5% of the initial pool consists of hotel/casino and non-income-producing property types. Also, the initial pool is highly leveraged — Fitch assigned a high debt service coverage ratio of 0.87 and a 120.8% loan-to-value ratio.

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