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Fitch: CDO Delinquencies Keep Rising

NEW YORK CITY-The October increase is due mainly to delinquencies in matured balloon loans, says the ratings agency.

By Paul Bubny | Updated on November 10, 2008

NEW YORK CITY-The US commercial real estate loan CDO delinquency rate rose to 3.13% in October, up from 2.39% for September, according to Fitch Ratings. With 14 new delinquent loans reported in October, the Fitch CREL CDO Delinquency Index has increased for four months in a row. A spokesman says it’s the first time delinquencies have risen four months in a row since the ratings agency began compiling the index in October 2007.

“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.

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