The lack of new European CMBS issuance means that the number of loans securitized in European CMBS transactions is shrinking, said Fitch Ratings in a report.
Despite low repayment rates on maturing loans, the number of loans fell to 701 from 740 during 3Q10.
"As loans reach their maturity dates, it is natural that those with the lowest loan-to-value ratios are more likely to repay, increasing the weighted-average LTV on the remaining portfolio," said Gioia Dominedo, senior director in Fitch's European CMBS team. "Similarly, low LTV loans are also more likely to prepay, especially if they are secured by high-quality collateral, taking advantage of the limited debt financing that is currently available."
The weighted average Fitch LTV for European CMBS loans increased to 98% from 96% over the past quarter, as a result of a combination of redemptions of low-LTV loans and further falling values for poor-quality collateral.
Dominedo said that the remaining collateral's lower quality will put further pressure on performance, especially where redemption proceeds are still allocated on a modified or fully pro-rata basis.