Formula
A class qualifies if B − ARAc ≥ 25% × B0 ; the controlling class is the most subordinate eligible class that qualifies. Exception: once every senior class is paid to zero, it is the most subordinate eligible class with B > 0, ARA ignored
Sources: BANK 2019-BNK20 Pooling and Servicing Agreement, dated as of September 1, 2019 (Form 8-K filed with the SEC on September 26, 2019, Exhibit 4.1) (opens in a new tab), Section 1.01, definition of “Controlling Class”; BANK 2019-BNK20 Pooling and Servicing Agreement, dated as of September 1, 2019 (Form 8-K filed with the SEC on September 26, 2019, Exhibit 4.1) (opens in a new tab), Section 1.01, definition of “Controlling Class”, proviso; BANK 2019-BNK20 Pooling and Servicing Agreement, dated as of September 1, 2019 (Form 8-K filed with the SEC on September 26, 2019, Exhibit 4.1) (opens in a new tab), Section 4.05(a), p. 334
- B
- The class's Certificate Balance on the date of determination.
- ARAc
- Cumulative appraisal reduction amounts allocable to the class.
- B0
- The class's Original Certificate Balance.
- Senior class
- Here, a Principal Balance Certificate other than the Control Eligible Certificates and the RR Interest; the exception applies once their balances are reduced to zero by principal payments on the mortgage loans.
How it works
The same definition has an exception: once the Certificate Balances of the Principal Balance Certificates other than the Control Eligible Certificates and the RR Interest have been reduced to zero by principal payments on the mortgage loans, the Controlling Class is the most subordinate Control Eligible class with a Certificate Balance above zero, without regard to any Cumulative Appraisal Reduction Amounts. In that deal the Class H Certificates are the Controlling Class as of the Closing Date, a fact of that deal, not a rule. Because the test compares each class's balance, after appraisal reductions, with its own original balance, control passes to the next more senior eligible class once the most subordinate class falls below 25%.
Worked example
Each deal defines its controlling class in its own documents; this 25% test is the one in Section 1.01 of the BANK 2019-BNK20 pooling and servicing agreement, an example, not a universal definition. In that deal Class H is the Controlling Class at closing, a fact of that deal, not a rule; the next more senior eligible class is called Class G here, and every balance is illustrative. Class H, the most subordinate, starts at $18,000,000 and Class G at $12,000,000, and neither has been paid down or written down yet. For determining the Controlling Class, Section 4.05(a) of the same agreement allocates appraisal reduction amounts to the classes in reverse sequential order, first to Class H, to notionally reduce their certificate balances. The example runs two levels of cumulative ARA: the $9,200,000 from the appraisal reduction amount example, and $15,000,000.
| Step | Calculation | Result |
|---|---|---|
| Class H threshold | 25% × $18,000,000 | $4,500,000 |
| Class H after $9,200,000 of ARA | $18,000,000 − $9,200,000 | $8,800,000: passes, H controls |
| Class H after $15,000,000 of ARA | $18,000,000 − $15,000,000 | $3,000,000: fails |
| Class G threshold | 25% × $12,000,000 | $3,000,000 |
| Class G after $15,000,000 of ARA | All $15,000,000 is absorbed by H, so $12,000,000 − $0 | $12,000,000: passes, G controls |
Control moves before the subordinate class loses a dollar of principal: an appraisal reduction alone, once it takes Class H's notional balance below 25% of its Original Certificate Balance, hands control to Class G.