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Fitch: U.S. CMBS Credit Enhancement Rises with Leverage in 1Q'14

May 2, 2014



NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Commercial Mortgage Market Metrics - U.S.A.

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=747378

Credit enhancement levels for U.S. CMBS rose in first quarter-2014 (1Q'14) as underlying loan leverage increased, according to Fitch Ratings in its latest quarterly index report.

Average 'AAA' credit enhancement (CE) for Fitch-rated transactions rose by 75 basis points (bps) in 1Q'14 from the prior quarter. 'Credit protection for 'AAA' CMBS is now 150 bps higher than one year ago,' said Managing Director Mary MacNeill. Average 'BBB-' CE increased by 62.5 bps quarter-over-quarter and is 75 bps higher than 1Q'13. This comes as the percentage of loans with Fitch-stressed DSCRs below 1.0x rose to 13.4%, up from 2.9% for the same quarter one year ago.

Further, the percentage of loans with Fitch-stressed loan-to-value ratios (LTVs) above 100% rose by nine percentage points in 1Q'14 from the prior quarter to 65%. The percentage of loans having or allowing subordinate debt also increased, up by over four percentage points in 1Q'14.

Despite the worsening leverage metrics, several other new issuance measures remained in check in 1Q'14. The combined percentage of full and partial interest only (IO) loans remained relatively flat, while weighted average mortgage rates fell by 10 bps from the prior quarter.

Metrics for legacy U.S. CMBS showed continued improvement in 1Q'14. Delinquencies fell 82 bps on the quarter, while the percentage of loans in special servicing fell by 105 bps, thanks in large part to CWCapital bulk asset sales. Moreover, 'Delinquencies on CMBS 2.0 transactions have been minimal, though last quarter saw the first 2013-vintage late-pay,' said MacNeill.

Upgrades to legacy CMBS also made a comeback in 1Q'14. The number of classes upgraded rose sharply to 87, compared with just eight in the prior quarter and only 58 for all of 2013. Rating Outlooks also held steady, with nearly 93% of investment-grade Rating Outlooks Stable as of Mar. 31, 2014.

Fitch's U.S. Commercial Mortgage Market Metrics report is part of a series of structured finance index reports. The report, which includes the latest on upcoming maturities, delinquency statistics, and new issuance trends, is updated quarterly and available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Mary MacNeill

Managing Director

+1-212-908-0785

Fitch Ratings, Inc., One State Street Plaza, New York, NY 10004

or

Karen Trebach

Senior Director

+1-212-908-0215

or

Scott Pritchard

Director

+1-212-908-9141

or

Media Relations:

Sandro Scenga, +1-212-908-0278 (New York)

sandro.scenga@fitchratings.com


Source: Fitch Ratings


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