Commercial Real Estate CDO Delinquencies Still Rising
An inability to refinance maturing loans fueled the fourth straight monthly rise in the delinquency rate for collateralized debt obligations composed of U.S. commercial real estate loans (CREL CDOs), according to the latest CREL CDO Delinquency Index from Fitch Ratings. Fitch deems a loan delinquent when payments are 60 days overdue.
Latest News
Most Popular Articles
advertisement
The U.S. commercial real estate CDO delinquency rate climbed to 3.13% in October from 2.39% in September, the rating agency found. Of the 14 newly delinquent loans, 90% were matured debts with balloon payments due. In fact, two thirds (67%) of all delinquent loans tracked by Fitch’s index fall under the same category of falling delinquent when the balloon payment was due.
While 74% of matured balloon loans continue to make monthly payments, approximately 26% — and 18% in Fitch’s CREL CDO Delinquency Index — are considered non-performing with inadequate cash flow to meet debt service obligations. In these cases, sponsors have refused or are unable to infuse additional equity into the projects.
Some borrowers with maturing loans are seeking and obtaining extensions to their existing debt agreements rather than refinancing while the credit crisis lingers. Asset managers reported 35 new loan extensions in October or 3% by number of loans in the CREL CDO universe, in line with September’s loan extensions.
At least 75% of October’s loan extensions involved borrowers who were exercising extension options spelled out in the original loan documents. Those options usually entail strict conditions for credit enhancements or other measures to reduce the lender’s risk, however, and meeting those conditions before the loan matures is a challenge for borrowers. That’s why the number of balloon loans in delinquency is increasing, according to Karen Trebach, senior director at Fitch Ratings. “The increase in matured balloons this month reflects that the extension process is taking longer both to negotiate and document.”
Some borrowers have successfully extended their loans despite a brief lapse into delinquency when negotiations exceeded the original loan's maturity date. Three loans, representing 25 basis points in Fitch’s index, were successfully extended and removed from the list of delinquent loans in the latest index report.
Acceptable Use Policy blog comments powered by Disqus
Want to use this article? Click here for options!
© 2012 Penton Media Inc.
advertisement
Photo Galleries
New York's Star Deals
The city that never sleeps is also the city that never stops growing, not even in the midst of recession. And deals, both bold and unprecedented, continue to be done. Check out image of New York's big deals.
Hudson Yards Development
Check out images for Coach's new global headquarters, which will anchor the initial tower of the Eastern Rail Yards site within the 26-acre mixed-
Videos
JLL at ICSC 2012
Check out these videos from JLL at ICSC 2012 in Las Vegas...
Click here to view more videos.
advertisement
Blogs
![]() |
Real Vox |
![]() |
Traffic Court |
![]() |
The Full Nelson |
Events
![]() |
|---|
Strategic Real Estate Investment ConferenceDate: Thursday, June 7, 2012 Click here to view more events... |
This Week's Most Popular
Current Issue
|
|









