Fitch Issues Caution on CDO Managers

NEW YORK CITY-Due to the growth of US-based commercial real estate loan CDOs, a more discerning eye should be placed on managers of the asset class, a Fitch Ratings report states. The firm notes that a dozen new managers brought in more than half of the $14.5 billion in total cash CREL CDOs that came to market in 2005. And according to a Citigroup Global Markets’ report, as much as 40% of this CDO issuance was distributed to investors located outside the US.

“Most of these first-time managers, however, are working with a learning curve regarding their responsibilities toward the many counterparties in a CREL CDO that investors should be cognizant of,” says Fitch senior director Vincent Matsui. Matsui points out that CREL CDO managers have the added task of demonstrating highly specialized CREL experience, skills and market knowledge. “This is especially important in a market as idiosyncratic as real estate. Sound loan origination and servicing skills are a must for a successful CREL CDO manager.” Matsui says they handle front-end and ongoing work of creating and administering a CREL CDO’s loan collateral, which is in contrast to structured finance CDO managers who “characteristically leave the collateral creation role to Wall Street bankers and administration to trustees or the issuers themselves.”