"Refinancing to third parties remains difficult with nearly 90% of all new delinquencies this month considered matured balloon loans," according to a release. Overall, 67% of the CREL DI consists of this type of delinquency, the release states. While 74% of matured balloon loans continue to make monthly payments, approximately 26%--or 18% of the CREL DI--are considered non-performing with inadequate cash flow to meet debt service obligations, according to the release. In these instances, sponsors have either refused, or are unable, to infuse additional equity into the projects.
Asset managers continue to report loan extensions, according to Fitch. In line with last month's total, asset managers reported 35 new loan extensions in October, or 3% by number of loans in the CREL CDO universe.
"Borrowers continue to be challenged to meet all extension requirements by loan maturity," says Karen Trebach, a senior director with Fitch, in the release. "The increase in matured balloons this month reflects that the extension process is taking longer both to negotiate and document." Three loans, representing 25 basis points, fell out of the CREL DI as the extensions were successfully executed prior to this month's reporting cutoff date.
In order to manage the credit quality of their pools, asset managers are continuing to repurchase assets out at par, according to Fitch. In October, three mezzanine loans representing four bps were repurchased; this rate compares to an average of 14 bps of monthly repurchases over the past year, the release states.
The release notes that asset managers have also traded some delinquent loans out of CDOs at a loss, including a foreclosed loan and a 90-plus days delinquent loan, both of which appeared in last month's CREL DI. The foreclosed loan was traded out at 84.7% of the loan amount, while the 90-plus days delinquent loan was traded out at a complete loss.
In addition, the release notes that asset managers have sold some CDO assets to third parties at below par, "thereby removing assets that were not yet deemed impaired by the trustee, and realizing losses. To date, however, the impact of the trading losses on the credit enhancement has been negligible."
The CREL DI includes loans that are delinquent for 60 days or longer, matured balloon loans and the current month's repurchased assets. Fitch currently rates 35 CREL CDOs encompassing approximately 1,100 loans and 350 rated securities/assets with a balance of $23.8 billion.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
