Fitch: CREL CDO Delinquencies Fall On Loan Dispositions

Asset manager removal of credit risk assets resulted in lower U.S. commercial real estate loan collateralized debt obligation (CREL CDO) delinquencies last month but escalated realized losses, according to the latest U.S. CREL CDO delinquency index results from Fitch Ratings.

Delinquencies for April decreased to 12.1% from 12.8%. However, if loans that were removed from the index over the last year at a loss were included, the delinquency rate would increase to 16.9%, Fitch says.

An increase in distressed-loan buyers may be leading asset managers to pursue loan sales over modifications, according to Stacey McGovern, a director at the firm.

‘Resolving credit-impaired assets at a loss to the CDO has become a consistent trend among asset managers,’ McGovern says. ‘Further, not all of the credit-impaired assets are delinquent at the time of the resolution.’

This strategy has yielded a third straight month of higher realized losses, Fitch adds. In total, realized losses in April were approximately $153.5 million.

Fitch updated its surveillance criteria for CREL CDOs in November 2009 and has completed reviews of 32 of the 35 Fitch-rated CREL CDOs. In the agency's analysis, the average base-case modeled losses for these CDOs is approximately 35%, while total actual realized losses to date are approximately 5%.

SOURCE: Fitch Ratings


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