In a report, Fitch  Ratings said that 21 newly delinquent assets led to a rise in U.S. commercial real estate loan (CREL) CDO delinquencies.

The rise was up to 6.5%  for  March  2009,  up from 5.4% in February 2009, according to the
latest  CREL  CDO  delinquency index (CREL DI) from the rating agency. Fitch now rates 35 CREL CDOs covering around 1,100 loans and 370 rated securities/assets with a balance of $23.8 billion.

The 28  CREL  CDOs  contained  at  least one delinquent loan with individual delinquency  rates  ranging  from  less  than 1% to 22.1% of the CDO par balance,  as  of  the  March  2009  reporting period. Fitch is still monitoring  CDO  delinquencies  on  a  monthly basis. Since September 2008, the agency has  taken  negative  actions  on  20  of its 35 Fitch-rated CREL
deals   with   more   downgrades   and  Negative  Rating  Watches expected with the review of the transactions are reviewed.

By contrast  to the recent trend of limited repurchases, six assets (27 basis  points of the CREL DI) were repurchased from three different CDOs in the March reporting period. An asset manager repurchased two assets from its CDO at par, while the four other assets from two different CDOs were  repurchased  at a 46.3% average discount to par, including one defaulted security that  was  repurchased  at 0.001% of par. Many CDOs allow  for  repurchases at prices that are less than par based on market pricing or third party opinion of value.

The repurchases were probably a result of an effort to maintain cushion in par value tests, therefore avoiding the diversion of cash flow from the CDO's preference  shares.  Although only one repurchased asset was haircut in the previous  month  for  the purpose  of  its  CDO’s  par  value calculation, the remaining  assets  were expected to be haircut imminently because of their
impaired  statuses.  For the most part, new higher-rated assets were traded into  the CDO  at  a  discount within a few days of the repurchases to re-build the total CDO par. Fitch considers asset purchase prices in its evaluation of CDO collateral.

"Further  maturity  defaults  are  likely as the illiquid credit markets provide limited prospects for the payoff of loans," said Fitch Senior Director Karen  Trebach.  Excluding the repurchased assets, nearly all of the new additions  to  the  CREL  DI  consist of matured balloon loans. Furthermore, reported  loan extensions decreased to 21 for the month, down from 37 in February, and more in line with the prior two months’ totals.

Non-cash  flowing  property  types  make up  the  highest percentage of assets  in  the  CREL  DI. Loans backed by interests in land are currently the highest  percentage  of  assets  in  the  CREL  DI at around 32%.

Condominium  conversions  as well as construction loans make up an added 11.1%. "Under  the  current credit market conditions, Fitch anticipates increased  defaults  on land loans as debt service reserves burn off and business plans fail to actualize," Trebach said.

The  CREL  DI  covers  loans  that  are  60 days or longer delinquent, matured balloon loans, as well as the current month's repurchased assets.

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