Nearly two-thirds – or 60% – of European CMBS maturing loans could fail to repay by the end of 2012, according to Standard & Poor's.
The rating agency said it based its finding on the loan-to-value (LTV) ratio, which can be a useful indicator of a borrower's ability to attract finance to meet its balloon maturity obligation.
S&P said it examined data on the 187 loans in European CMBS scheduled to mature between January 2010 and September 2011 and found that borrowers repaid most of the maturing loans with LTV ratios up to 70% whereas they struggled to repay loans with LTV ratios greater than 70% – they repaid 51 in the first category and only repaid 29 in the second.
"In percentage terms, 70% of loans with LTVs of 70% or below repaid in full, whereas only 26% of loans by loan count with LTVs greater than 70% repaid in full," S&P credit analyst Judith O'Driscoll said.
The ratings agency's LTV analysis also revealed that 22 of the loans scheduled to mature between now and December 2012 have prepaid but the majority of these (13 or 60%) have LTV ratios below 70%.
Of the 183 loans that are scheduled to mature between Oct. 1 and December 31, 2012 , most of these have reported LTV ratios of greater than 70%.
"Based on LTV data alone, we believe that it's reasonable to conclude that borrowers may struggle to repay nearly two-thirds of the loans that are scheduled to mature between now and end 2012," O'Driscoll said. "By the same token, we consider repayment prospects are brighter for the remaining 75 loans that have LTV ratios of 70% or less."