News Column

Fitch: U.S. CMBS New Issuance Metrics Slip Again

July 31, 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=753227

Leverage and other key metrics for U.S. CMBS slipped again in the second quarter, driving credit enhancement (CE) levels for new deals higher still, according to Fitch Ratings in its latest quarterly index report.

Average 'AAA' CE for Fitch-rated transactions rose to 24% in 2Q'14, up 1.125 percentage points from the prior quarter and 2.375 percentage points from one year ago. 'Fitch has quoted credit enhancement above 25% on several deals it ended up not rating, which begs the question of whether super senior credit enhancement will soon be poised for a move above 30% if the trend continues,' said Managing Director Huxley Somerville. Meanwhile, average 'BBB-' CE increased by 25 basis points (bps) quarter over quarter and is 100 bps higher than 2Q'13.

The higher CE comes as the percentage of loans with Fitch-stressed DSCRs below 1.0x rose to 16.4%, up from just 1.9% for the same quarter one year ago. In addition, the percentage of loans with Fitch-stressed loan-to-value ratios (LTVs) above 100% rose by over five percentage points in 2Q'14 from the prior quarter to 71%. The percentage of full term interest-only (IO) loans also rose by almost five percentage points last quarter to 20.5%.

Several other new issuance measures remained in check in 2Q'14, including the exposure to retail properties at 31%, which is the same as the previous quarter and last year. Also, the exposure to the southeast region declined, while the exposure to the Mid-East increased, which includes the New York metropolitan area. Additionally, 'The average percentage of CMBS loans having or allowing subordinate debt fell by seven percentage points quarter over quarter for the first time in two years,' said Managing Director Mary MacNeill. Further, weighted average mortgage rates in 2Q'14 fell by another 10 bps (the same drop as between 4Q'13 and 1Q'14).

As new issue metrics continued to decline, metrics for legacy U.S. CMBS continued to improve last quarter. Delinquencies fell 29 bps on the quarter, while the percentage of loans in special servicing fell by 34 bps. Upgrades to legacy CMBS rose in 2Q'14, led by 2004 and prior vintage transactions as they paid down. Similarly, Rating Outlooks also held steady, with nearly 94% of investment-grade Rating Outlooks Stable as of June 30, 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., 33 Whitehall Street, 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, New York, +1 212-908-0278

Email: sandro.scenga@fitchratings.com

Source: Fitch Ratings


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