Total losses on EMEA structured finance (SF) are low and are concentrated in certain crisis-era transactions, Fitch Ratings says in a new report. More than three-quarters of all expected losses have now been realised.
Adverse selection within the waning U.S. CMBS 1.0 universe - loans originated prior to 2009 - drives higher loss severities in 2018, according to Fitch Ratings annual U.S. CMBS loss study. While cumulative 2018 CMBS loss severities were in line with recent years at 45.6%, compared with 45.9% in 2017, average annual loss severity rose to 42.1% from 35.6% in 2017.
Fitch’s Chief Credit Officer, Jeremy Carter, and Group Credit Officer, Andreas Wilgen, discuss the progress which has been made to prepare financial markets for the discontinuation of IBOR indices and highlight the risks which still remain.
Now that CMBS 2.0 has several years of performance history, come listen to Bob Vrchota and Melissa Che discuss the differences between the performance of bank and nonbank originated loans that have defaulted to date. Join us as we discuss the drivers behind the loan defaults and gain insight on the timing of defaults.
Substantial progress in recent months will better prepare financial markets for the discontinuation of IBOR indices, but transition risks remain, Fitch Ratings says in a new report. Our ratings address the payment of interest (and principal) in accordance with the underlying terms of an obligation and would not be directly affected by transition from one reference rate to another or any accompanying spread adjustment.
More favorable treatment to Investment Grade (IG) tenants when analyzing loans in U.S. CMBS transactions given the lower expected default rate relative to below IG or unrated tenants. However, issuers and originators must verify that an IG entity is named on the lease, or an IG entity guarantees the lease of a property backing a U.S. CMBS loan to warrant the additional benefit that Fitch assigns to highly rated tenants.
Defaults and losses for Canadian CMBS loans remain very low despite the Great Recession, the 2014 global oil price decline and the Fort McMurray wildfires, according to Fitch Ratings in its latest Canadian CMBS loan default and loss study.
The structured finance markets in North America are positioned for another stable year in 2019; however, Fitch Ratings' outlook report points to several noteworthy external factors investors should consider.
Sears Holdings' Chapter 11 bankruptcy filing will likely place additional stress on the existing performance of already underperforming regional malls throughout the country, which, according to Fitch Ratings, means added stress on some of its rated U.S. CMBS. Across the Fitch-rated CMBS portfolio, the overall exposure to Sears and Kmart consists of 126 loans totaling approximately $6.6 billion securitized in 116 transactions.
Increasing loan prepayment and defeasance volume is largely driven by U.S. CMBS 2.0 borrowers continuing to take advantage of the current low interest rate environment and stable to improving property performance. Borrowers are acting in anticipation of further interest rate rises this year and in 2019. Fitch Ratings expects the trend to slow through 2019 in conjunction with each additional interest rate increase.
Late-cycle credit behaviour is manifesting in securitisations more frequently of late, which has triggered more unsolicited commentaries from Fitch Ratings on structured finance deals not rated by the agency and in certain sectors, according to the rating agency in a new report.
Negative rating actions are unlikely for roughly $3.4 billion of Fitch-rated U.S. CMBS with exposure to properties in Florida and Georgia affected by Hurricane Michael last week given servicer advancing, insurance coverage typical of CMBS loans and strong sponsorship among the larger affected properties, according to the rating agency's latest weekly U.S. CMBS newsletter.
Strong new issuance volume, along with steady loan resolution activity and minimal new delinquencies, fueled the fifth consecutive month of decline in the U.S. CMBS delinquency rate, according to the latest index results from Fitch Ratings.
Property type NOI growth continues to decelerate in U.S. CMBS, according to Fitch Ratings in its latest weekly U.S. CMBS newsletter. NOI for properties securitized within Fitch-rated U.S. CMBS conduit deals rose again last year by 1.9%. However, Fitch observed a continuation of the trend of slowing growth over the last four years.
This series features senior analysts across our structured finance teams answering the questions we regularly address in one-on-one investor meetings. It covers overall market trends, specific transaction performance, and broad economic issues to give you the insights and perspective you’d get at one of our in-person meetings.
Elizabeth Finance 2018 DAC exposes noteholders to a concentrated portfolio of secondary quality regional UK properties financed by two loans. The CMBS cannot support 'AAAsf' or 'AAsf' ratings, regardless of leverage, particularly given that repayments from refinancing borrowers will be repaid to note classes on a pro-rata basis (according to DBRS's presale report).
The US commercial mortgage-backed securities (CMBS) delinquency rate is expected to finish 2018 between 2.25% and 2.75%, Fitch Ratings says. Strong new issuance activity, performance stability of CMBS 2.0 loans, the small volume of maturities for the remainder of 2018 and continued resolution activity by special servicers will all contribute to keeping delinquencies in this low range.