KinderCare Completes $300 Million Securitization of 475 Child Care Centers

Morgan Stanley Capital I Inc. Series 2003-KIDS

KinderCare, the largest provider of for profit preschool services in the U.S., has completed the securitization of 475 child care centers raising a total of $300 million. The mortgaged properties are located in 33 states and were built between 1959 and 2002 and total 3.3 million square feet.

KinderCare was established in 1969 andcurrently operates 1,278 child care centers in 39 states. At KinderCare's centers, educational services are provided to infants and children up to the age of 12. The majority of children enrolled in KinderCare centers are between the ages of six weeks and five years. As of March 7, 2003, the trailing 12 month occupancy of the mortgaged properties was 66.8%. KinderCare is owned by Kohlberg, Kravis & Roberts (KKR), an investment firm that makes equity investments in management buyouts on behalf of its investment funds.

The mortgage loan was originated by Morgan Stanley Mortgage Capital Inc. on July 2, 2003, in the amount of $300 million. The mortgage loan bears interest at LIBOR, which is adjusted monthly, plus a gross margin, which has been set at 2.25%. Principal payments are required monthly based on a 30-year amortization schedule. The borrower has entered into an initial interest rate cap agreement with Morgan Stanley Capital Services Inc. (which has a short-term rating of 'A-1'). The cap has an initial LIBOR strike price of 6.50% and expires July 9, 2006, two years prior to the maturity date of the loan. Upon expiration, the loan documents require the borrower to obtain a replacement interest rate cap. The mortgage loan matures on July 9, 2008; however, the loan also provides for one, one-year extension. The mortgage loan cannot be prepaid during the first two loan years. Beginning in the third year, $5 million of the loan can be prepaid each year with a prepayment premium that begins at 3.0% of the outstanding principal balance and declines annually, eventually reaching 0.0% in the final loan year.
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