Bank of America Merrill Lynch said in a report on Friday that half of all outstanding CMBS conduit loans set to mature over the next five years would be able to refinance successfully.

The bank's analysts said in the report that based on their analysis approximately $230 billion of outstanding conduit loans have LTVs less than 75%, $120 billion have LTVs of 75%-100%, and $110 billion have LTVs that exceed 100%.

Based on the LTVs, half of the loans maturing would be able to refinance, 26% would be extension candidates, and the remaining 24% could incur a loss.

"LTV is not a precise indicator of whether or not a borrower will be able to refinance as it doesn’t allow us to predict borrower behavior or a borrower’s specific expectations," analysts explained in the Oct. 26, report. "Certain borrowers may be willing to inject equity into properties with high LTVs, which will allow them to refinance although we estimate they will default."

The report said that nearly two-thirds of the loans maturing in 2013 have LTVs of less than 75% -- the majority of these loans have LTVs less than 60%. The LTV distribution for loans slated to mature in 2014 looks similar to those set to mature next year but loans maturing in 2015 and 2016 had a higher percentage of loans that the analysts said, "may have some difficulty refinancing unless property prices increase or allowable leverage increases."

However, BofA Merrill analysts said in the report that the vast majority of the 33% of loans set to mature in 2015 that have LTVs between 75% and 100%, won’t incur a loss.

For loans maturing in 2016, it's a different story. According to the report, a quarter of all loans set to mature in 2016 have LTVs above 100%.

Yet the analysts noted that by 2016, property prices may have increased relative to their levels today, which will allow some of the 100%+ LTV loans to refinance successfully. "Of the loans maturing in 2016 that currently have LTVs above 100%, roughly half should see their LTV level drop below 100% if property prices rise 15% from today’s levels," according to the report.

The $130 billion of conduit loans set to mature in 2017 had the worst LTV distribution profile, with roughly 30% currently at 100% LTV or more. Here too, the analysts expect that of these loans expected to mature in 2017, roughly 40% should see their LTV level drop below 100% if property prices rise 15% from today’s levels.


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