Default rates on loans backing Japanese CMBS is at its highest to date, exceeding the previous peak of JPY192.4 billion ($2.2 billion) at end-September 2009, Fitch Ratings said in a report released today.

As of end-June 2010, 51 loans (JPY200.6 billion) were in default within the Fitch-rated Japanese CMBS universe.

In Q210, 11 loans totaling JPY53.4 billion defaulted, which resulted in the default rate as of end-June 2010 reaching 20.7% by loan balance, and 32.9% by loan count as compared to 16.9% and 25.9% respectively at end-March 2010. Both rates are at the highest seen to date.

"There are a number of loans which may default as a result of failure to make debt service payments, due to deterioration in property cash flows," the rating agency said. "If this occurs, it would be the first time for an underlying loan backing any Fitch-rated Japanese CMBS to have experienced debt service or term payment default, as opposed to default at maturity."

However, it's not all bad news for the Japanese securitization market. This week Moody's Investors Service said that asset performance of Japanese structured deals is normalizing.

The rating firm revised its outlooks to stable from negative for RMBS based on improving macro-economic assumptions for Japan, as well as its revised view on the credit fundamentals of the asset.

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