N-45°

N-45° First CMBS Issuer Corporation

The securitization of commercial mortgage debt is one of Otéra Capital’s areas of expertise. With its market experience in commercial real estate mortgage-backed securities (CMBSs), N-45° enjoys an excellent reputation as an issuer among Canadian investors, rating agencies and brokerage firms.

What is N-45°?

N-45° First CMBS Issuer Corporation has been a Canadian pioneer in issuing securities backed by commercial mortgages. In creating N-45°, the Caisse de dépôt et placement du Québec and its affiliated companies (referred to here as the “Caisse”) recognized investor demand from the outset and sought to provide a liquid commercial real estate debt product enabling investors to select a risk/yield relation best suited to them.

In establishing N-45°, the Caisse applied its expertise in commercial real estate debt, financial engineering and capital markets.

N-45° was one of Canada's
first public issuers of CMBSs.

Working alongside investors

The Caisse has historically favoured a partnership approach with its investors by holding subordinated debentures on N-45° issues. With the underlying mortgages being subscribed beforehand for the Caisse’s account, N-45° benefits from best practices in mortgage lending.

Investors in N-45° issues, who already gain from a rise in structural credit provided by the sequential payment cascade from CMBSs, also benefit from the role of the Caisse, which maintains an economic interest throughout the issue’s duration.

Otéra handles everyday management of securitized mortgage loans (including in particular the collection of payments made by borrowers and verification that buildings are insured and property taxes paid) as well as periodic follow-up of loan-related risks (analysis of leases and of building revenues and expenses, physical inspection of buildings, and building valuations).

This approach ensures continuity in the follow-up of securitized mortgage loans and more efficient exchange of information by Otéra as a subscriber and as the administrator of these loans. This favours the holders of debentures issued by N-45°.

A flawless record

Our approach benefits everyone involved in the market. N-45° has provided an outstanding performance to date: no loan is in default, and no loss has been produced.

N-45° has eight CMBS issues to its credit for a total of $2.8 billion issued, with the following balance as of June 30, 2010:


Series 1999-1	$ 254 114 789	$ 0

Series 2000-1	$ 235 000 000	$ 187 617 535.75

Series 2000-2	$ 251 002 938	$15 294 847.78

Series 2001-1	$ 358 412 535	$ 54 597 792.56

Series 2002-1	$ 335 537 930	$ 143 401 014.76

Series 2003-1	$ 559 735 881	$ 225 605 501.71

Series 2003-2	$ 370 630 065	$ 333 647 905.84

Series 2003-3	$ 462 449 072	$ 275 559 727.17

Series 2005-1	-	$ 147 599 205.45

Why N-45°?

The 45th degree of north latitude marks the boundary between the Canadian province of Québec and the U.S. state of Vermont. This feature denotes the nature of operations of N-45°, which securitizes Canadian commercial mortgage loans.

The mechanics of a CMBS

When a commercial building is acquired, the buyer generally takes out a mortgage loan. A CMBS bundles various mortgages and is a vehicle for the issuance of debentures. Cash flows generated by the mortgages are used to pay these debentures.

A CMBS has several classes of debentures, which have rights to payment based on a pre-established payment cascade. This payment cascade, and the quality of the mortgages bundled in a mortgage-backed security, enable the security to be rated by recognized rating agencies.

Lexicon

Sequential payment cascade:

The payment cascade of a CMBS is sequential. Securities in a higher category receive their interest and capital payments on a priority basis. Similarly, if there were to be a loss, securities in a subordinated class of the issue would suffer losses first.

CMBS (commercial mortgage-backed securities):

Securities issued on the market in tranches, to which credit ratings are given by a recognized rating agency. Each tranche receives a separate rating based on the guarantee associated with it, which in turn depends on a group of mortgages granted to borrowers and the guarantee provided by the issuer of the security.

Each first mortgage covers one or more of the underlying buildings such as office buildings, residential complexes, shopping centres, hotels, retirement homes or industrial warehouses. Cash flows from the mortgages are used to pay CMBS debentures. These mortgages are paid by cash flows generated by the buildings based on revenues collected from their tenants.

Securitization:

An operation through which a company converts assets or debt securities (mortgage loans, etc.) by bundling them and offering a new security to investors.

Links

Documents issued by N-45°



	Sedar	(English)

	Sedar	(French)

Rating agencies

Rating agencies are organizations specializing in the financial rating of issuers or of the securities issued. They provide investors with an appreciation of the quality of securities, the risks they constitute and the issuer’s ability to meet its financial commitments. The agencies periodically evaluate the various tranches of the eight N-45° issues. It should be noted that all N-45° issues have received upgrades since their original financial ratings.


	DBRS	(English)

	Standard & Poor's	(English)

	Moody’s	(registration required for access to information)