Kroll Bond Rating Agency placed the ratings of $67.3 million of commercial mortgage bonds from three transactions under review for a possible downgrade due to their exposure to buildings with tenants in North Dakota’s oil industry.

Under review are four classes of notes from three transactions: COMM 2013-CCRE10, COMM 2013-CCRE12, and MSBAM 2014-C18

KBRA has identified additional loans in deals that it does not rate, for a total of 19 loans totaling $190.1 million, with collateral in North Dakota that it considers to be “loans of concern.” They are used as collateral in 15 CMBS transactions. Of these, five loans in three transactions could be downgraded because the loans are either in default or at heightened risk of default in the near term. 

The rating agency estimates that losses on these loans will range from 23.8% to 87.9%, with an average of 62.2%. KBRA’s loss estimates considered current and expected market conditions in the region. These estimates are based on rental rates, vacancy rates, operating expense ratios, and capitalization rates. It also factored in the costs and expenses associated with liquidating the collateral, and evaluated the impact of losses on the capital structure of the affected securitizations.

Despite the number of loans at risk of default, the number of bonds put under review for downgrade was  limited due to the relative size of the loans, which represented 0.3% to 1.9% of the aggregate pool balance of the respective CMBS transactions, with an average of 1.1%.

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