TEXT-S&P says interest shortfalls drive note defaults in CMBS deals

Thu Nov 8, 2012 9:35am EST

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(The following statement was released by the rating agency)

Nov 08 -

OVERVIEW

-- In September, interest shortfalls led to further note-level defaults, which pushed the number of defaults in 2012 to 21.

-- We expect the increase in the number of loans in our special servicing index to continue.

-- LTV covenant breaches caused a slight increase in our total nonmonetary breach rate.

-- We expect loan performance to continue to come under pressure in 2013.

The performance of the commercial mortgage-backed securities (CMBS) transactions that Standard & Poor's Ratings Services includes in its index continued to decline in September 2012, as six more classes of notes defaulted following interest shortfalls in five transactions. This has pushed the number of defaults in 2012 to 21, which is more than half the total number of defaults (37) in 2011.

Credit analyst James Belchamber said "We anticipate the rating default index will increase by year-end 2012, as a result of the final reporting period, but should stay below 2011 levels,"

According to our October 2012 European CMBS monthly bulletin, two out of eight loans scheduled to mature defaulted in September--we are currently awaiting information on the remaining six. On the other hand, our 12-month rolling maturity default rate has decreased to 13.88% from 15.52% as a result of the (approximately) GBP720 million repayment of one large loan.

Mr. Belchamber continued: "We do not consider this decrease to be part of a new downward trend and envision that this index will increase in the coming months, in line with future reporting periods. Overall, we expect loan performance to continue to come under pressure in 2013, as a large number of loans near maturity and interruptions to cash flow and margin mismatches become more pronounced."

RELATED CRITERIA AND RESEARCH

-- European CMBS Monthly Bulletin (October 2012): Interest Shortfalls Lead To Further Note-Level Defaults, Nov. 7, 2012

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