Delinquences on commercial real estate loan CDOs declined slightly in October as more lenders stretched out the maturities of loans backing these securities, according to the latest index results from Fitch Ratings.
CREL CDO delinquencies fell 10 basis points to 12.8% in October from 12.9% in September. There were 58 loan extensions reported in October, up from the 2010 monthly average of 37 extensions.
“Many new loan extensions are short term remedies designed to allow added time for further negotiation of pending loan modifications,' Fitch director Stacey McGovern said in a press release.
New delinquencies included five term defaults, one matured balloon, and two newly credit impaired securities. Additionally, 11 delinquent assets were removed, including two loan interests paid off at par, three loans disposed of at a loss, five assets brought current and one extended matured balloon.
CREL CDO asset managers reported approximately $98 million in realized losses from the disposal of distressed assets in October. 'The risk still remains for realized losses to increase if real estate trends backpedal, though they have been in a relative holding pattern for the last few months,' said McGovern. Total realized losses across the CREL CDO universe total over $1.7 billion (or approximately 7.6% of the collateral balance).
The highest asset loss to a CDO in October was approximately $29 million from the sale of a whole loan at approximately 50% of par. The 530,000 square foot office property was facing the loss of its largest tenant. Also of note, four different CREL CDOs sold mezzanine interests in the same hotel portfolio at an average price of 83% of par. The A-note associated with these interests, which is not contributed to a CDO, subsequently defaulted at maturity.
In October, 33 of the 35 CREL CDOS rated by Fitch Ratings reported delinquencies ranging from 0.4% to 39.9%. Currently, 14 rated CREL CDOs are failing at least one overcollateralization test, which is in line with last month. Failure of overcollateralization tests also leads to the cutoff of interest payments to subordinate classes, including preferred shares, which are typically held by the CDO asset managers.
Fitch Ratings' universe of 35 rated CREL CDOs currently encompasses approximately 1,100 loans and 500 rated securities/assets with a balance of $22.7 billion. The CREL delinquency index includes loans and assets that are currently 60 days or longer delinquent, matured balloon loans, and the current month's repurchased assets.
