NEW YORK--(Business Wire)--
New matured balloons and past due loans secured by interests in non-traditional
assets propelled U.S. CREL CDO delinquencies past 10% for the first time,
according to the latest index results from Fitch Ratings.
The Fitch CREL CDO Delinquency Index for October increased to 10.8% from 8.7%
last month, with non-traditional property types now representing 44% of all
delinquencies, a disproportionate amount compared to the percent of all
collateral in CREL CDOs. Non-traditional property types, which include loans
secured by interests in land, condominium conversions and construction projects,
comprise only 13% of the collateral in Fitch rated CREL CDOs.
'About a third of the new delinquencies are large matured balloon loans that may
be ultimately extended,' said Senior Director Karen Trebach. 'While these loans
may be returned to performing status sometime in the future, Fitch will consider
the merits of loan modifications and extensions in its surveillance analysis.'
The largest new delinquency is a $110 million A-note secured by a portfolio of
eight multifamily properties located in five states. An affiliate of the asset
manager assumed the loan and subsequently extended it for a year at a below
market rate, which was 200 basis points lower than the coupon at origination.
Without this spread reduction, the cash flow would not have been sufficient to
cover debt service. Upon its newly extended maturity date, this loan defaulted.
New delinquencies secured by non-traditional property types this past month
included two loans secured by interests in land and two secured by construction
projects. Land loans currently comprise the largest component of the index with
32% of all delinquent loans. Approximately 40% of all land loans in the Fitch
rated CREL CDO universe are now delinquent with increased delinquencies
expected. Other non-traditional asset types also have high overall delinquency
rates with condominium conversions at 23% and construction loans at 29%. Fitch
assumes all loans secured by interests in land and other non-income producing
assets experience a term default as part of its rating reviews.
Realized losses continue to accumulate with $27 million reported this past
month, including a $9.4 million mezzanine loan interest on land that was
completely foreclosed out. To date, total realized losses to CREL CDOs are
approximately 3.4% of the fully-ramped collateral balance.
34 of the 35 Fitch rated CREL CDOS reported delinquencies in October with
individual rates ranging from 1.4% to 38.6%. Additionally, a total of 13 Fitch
rated CREL CDOs were failing at least one overcollateralization (OC) test. While
two new CDOs are failing at least one test, a CDO that was previously failing a
test by only 0.08% cured the failure by building par through the purchase of
three discounted assets. Failure of OC tests leads to the cutoff of interest
payments to subordinate classes, including preferred shares, which are typically
held by the CDO asset managers.
The universe of 35 Fitch rated CREL CDOs currently encompasses approximately
1,100 loans and 350 rated securities/assets with a balance of $23.8 billion. The
CREL delinquency index includes loans and assets that are 60 days or longer
delinquent, matured balloon loans, and the current month's repurchased assets.
Additional information is available at 'www.fitchratings.com
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE
AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF
CONDUCT' SECTION OF THIS SITE.
Fitch Ratings, New York
Karen Trebach, 212-908-0215
Stacey McGovern, 212-908-0722
or
Media Relations:
Sandro Scenga, 212-908-0278
Email: sandro.scenga@fitchratings.com
Copyright Business Wire 2009
