The limited availability of refinancing for maturing loans in Europe will be the key threat to the credit quality of the continent's outstanding commercial mortgage-backed securities (CMBS) transactions in 2012, according to new data released by Moody's.
‘The credit quality of existing transactions is set to decline as the proportion of loans entering into payment default continues to rise," according to the Moody's European CMBS: 2012 Outlook. ‘We expect more loans to continue to slip into nonperforming status, which will be credit negative for outstanding CMBS. The share of loans that have repaid at their maturity date has fallen steadily over the past few years. From January to November 2011, only 28 percent of all matured loans repaid by their maturity date and another 9 percent repaid late.’
Moody's predicts that a peak in refinancing needs will occur in 2012 and 2013, with a ‘significant funding gap of $122 billion’ existing between refinancing needs and available financing in the overall European market over the next three years.
‘We therefore expect an increase in defaults and/or restructurings in 2012,’ Moody's states. ‘Most of the loans maturing in 2012, which are secured by nonprime properties, will not be repaid but will be extended by servicers to avoid losses arising from property value declines.’