In its quarterly performance update on European CMBS, Fitch Ratings said that default at loan maturity remains the major risk in the sector.

Even though the majority of maturity dates still some years away, ongoing deterioration in loan credit quality has led to downward pressure on ratings.

"Some  of the largest loans in European CMBS are scheduled to mature in the next  two  to  four years and it remains questionable as to whether markets will  have  improved  enough  by then to allow for orderly refinance," said Euan Gatfield, senior director, Fitch Ratings. "We expect that servicers will resort to loan extensions and restructuring in the coming years, especially if swap rates remain low."

Fitch said that the persistent constriction in new lending is contributing to breaches of financial covenants and technical defaults in a small but growing number of European CMBS loans.

Analysts believe that the decision of primary servicers in most cases to forgo the opportunity to test loan-to-value covenants and call for new valuations, has kept loans with positive income coverage from falling into default. 

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