Fitch: U.S. CREL CDO Delinquencies Level Off on Removal of Delinquent Assets.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has observed a larger number of asset managers removing credit impaired assets Impaired Asset An asset with a market value that is worth less than its book value. Notes: If the sum of all estimated future cash flows is less than the carrying value of the asset, then the asset would be considered impaired and would have to be written down to its fair at prices below par, which has resulted in realized losses to CDO (Collaborative Data Objects) A programming interface from Microsoft for accessing MAPI-based e-mail, calendaring and scheduling servers. Originally called "OLE Messaging" and "Active Messaging," CDO wraps the Enhanced MAPI library into a COM object that provides the collateral. Many CDOs have offset this collateral deterioration through par building: primarily through the purchase of rated securities at prices well below par. As a result of the removal of credit impaired assets, and despite eight new delinquent loans entering the commercial real estate loan (CREL CREL Circular Regional Externa de Lisboa ) CDO delinquency index, Fitch's May delinquency index was relatively stable at 7.9%, representing a slight increase from the April 2009 level of 7.8%. 'Asset managers have been removing credit impaired assets from CDOs, often in order to preserve overcollateralization ratio tests, which has tempered this month's delinquencies,' said Senior Director Karen Trebach. 'However, Fitch anticipates that this reprieve will be short with delinquencies continuing to rise measurably through year end, and more CREL CDOs facing overcollateralization test failures in the coming months.' Currently, 11 of the 35 Fitch rated CREL CDOs are failing at least one overcollateralization test. During the May reporting period, nine assets were removed from the CREL delinquency index, including five assets traded out at discounts and one discounted payoff. Prices ranged from 0.59% to 69% of par. Consistent with Fitch's assumption of little to no recoveries on distressed mezzanine and subordinate debt See Junior debt. , trades included two mezzanine loans sold out of their CDOs at less than 1% of par. Fitch considers all losses to par in its evaluation of the credit enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing available for each CDO tranche. Realized losses to the collateral have been occurring in three different ways: trades of impaired assets, repurchases, and discounted payoffs. Two repurchases of delinquent assets occurred in May 2009. A CDO asset manager paid less than par for both of these loans. Removing these two assets from the transaction assisted the CDO in maintaining cushion to its overcollateralization ratio tests. Finally, at least two asset managers reported accepting discounted payoffs on two loans, including a matured balloon loan that appeared in last month's CREL delinquency index, which was allowed to be paid off at 56% of par. Overall, the CREL delinquency index consists of 32% term defaults, 44.5% maturity defaults, 22.7% foreclosure/real estate owned (REO reo Noun NZ a language [Maori] ), and 0.8% repurchased loans. Fitch expects more delinquent loans to move towards foreclosure foreclosure Legal proceeding by which a borrower's rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. and REO. Additionally, as CDOs begin to resolve these foreclosed and REO loans, further realized collateral losses are expected. Asset managers extended 33 loans in the May reporting period. As in prior months, many of these were short term extensions to allow time to negotiate longer term extensions, or pursue refinancing, which in most cases, Fitch still expects will be unobtainable. Loans backed by interests in land continue to represent the highest percentage of assets in the CREL delinquency index at approximately 30.1% up slightly from last month's total of 27.7%. The next highest percentage is multifamily at 21.1%. Fitch currently rates 35 CREL CDOs encompassing approximately 1,100 loans and 370 rated securities/assets with a balance of $23.8 billion. The CREL delinquency index includes loans that are 60 days or longer delinquent, matured balloon loans, and the current month's repurchased assets. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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