The asset performance of almost 90% of structured finance transactions globally have high or moderate vulnerability to disruptions as a result of the coronavirus and containment efforts. Our report categorizes each sector's asset performance vulnerability to the effects of a temporary coronavirus disruption scenario, including travel restrictions, business and school closures, and a moratorium on large gatherings in major metropolitan areas around the globe.
Please join us as our analysts discuss the impact of Coronavirus on North American CMBS. The analysts will focus on the property types that are most at risk, the implication for ratings changes, and how structural features including servicers will play a part.
Interest payments on structured finance (SF) subordinated notes with weak liquidity provisions may be deferred if there is a high take-up of payment holidays for an extended period due to the coronavirus outbreak, Fitch Ratings says. We expect most governments or lenders to announce some form of payment holiday or forbearance measures for consumer and SME loans.
Nearly $5 billion of non-defeased loans within the Fitch-rated U.S. CMBS 2.0 conduit and Freddie Mac universe are scheduled to mature through the end of 2020. The majority of this year's scheduled maturities are in the second half of the year ($4.3 billion); approximately $707 million is scheduled to mature during the remainder of 1H 2020. The maturities in 2020 are considerably lower than in 2021 when over $14 billion is expected to mature.
Fitch Ratings has placed 81 classes from 15 U.S. CMBS single borrower transactions on Rating Watch Negative. The 15 transactions represent the entire portfolio of Fitch-rated single borrower hotel transactions.
Fitch Ratings has revised its North American CMBS hotel asset performance outlook to negative from stable/negative. The negative outlook revision for the sector is due to several factors including new supply and weakening economic conditions. The impact from the coronavirus will exacerbate hotel cash flow declines and rising expenses from wages and real estate taxes may exceed revenue growth.
The materiality of environmental, social and governance (ESG) factors on the ratings of global structured finance transactions, reflected by ESG relevance scores (ESG.RS) of '4' or '5', is greater for older vintage structured finance credits. Pre-financial crisis vintages, originated before 2009, are most influenced by negative ESG factors.
Fitch Ratings has observed an increasing pace of CMBS 2.0 (post-2009 vintage) loan transfers to special servicing, with the volume of CMBS 2.0 loans/assets in special servicing now exceeding those of CMBS 1.0. Approximately $8.4 billion, or 2.7% of the Fitch-rated U.S. CMBS conduit universe, was in special servicing as of February 2020.
U.S. CMBS credit enhancement (CE) levels declined slightly in 2019. Although this statistic may seem counterintuitive this late in the credit cycle, the pool composition, including the increased percentage of lower-leverage, higher quality, 'credit opinion' loans has changed. Fitch's quoted CE levels consist of the blend, or fusion, between the conduit loans and the credit opinion loans at each rating category.
Comparing credit metrics of today's conduit deals to the peak CMBS 1.0 vintages of 2006 and 2007 is a topic that regularly comes up when Fitch Ratings meets with investors. Generally weakening loan structure and the proliferation of interest only periods in recent-issue CMBS often draws comparisons to 2007. To help provide context and a level comparison of today's deals relative to prior vintages of CMBS, Fitch recently completed a study of 2007 vintage conduit deals and lined up key metrics against FY 2019 averages.
Fitch Ratings has been recognized as the best rating agency for structured finance at FinanceAsia's annual 2019 achievement awards and was also voted Australian structured finance rating agency of the year by KangaNews. FinanceAsia also named Fitch as the best credit ratings agency for financial institutions and public finance.
The U.S. CMBS delinquency rate fell in November to its lowest point since February 2009. The decline was driven by strong new issuance activity. Loan delinquencies fell 14 basis points (bps) in November to 1.52% from 1.66% a month earlier. Fitch-rated new issuance volume of $8 billion from nine transactions in October outpaced portfolio runoff of $2.3 billion, resulting in a higher overall index denominator.
The U.S. CMBS delinquency rate declined to yet another post-crisis low in October, according to Fitch Ratings. The decline was driven by steady new issuance activity and continued resolution of legacy CMBS 1.0 assets.
Affirmations continue to account for the vast majority of U.S. CMBS rating actions in 2019, according to Fitch Ratings. As of YTD Nov. 18, 2019, downgrades outpaced upgrades 186 to 137 with 6,146 affirmations.
Fitch Ratings has launched an ESG 'heat map' covering 54 different sub-sectors across 4,821 transaction and programme ratings for structured finance (SF) and covered bonds (CVB), to provide further insight into the relevance of ESG factors to credit ratings. The map is designed to help users understand how relevant individual ESG topics are to credit ratings across different sub-sectors for ABS, CMBS and RMBS transactions, and CVB programmes.
Engineering high ground rent ratios on commercial property significantly increases credit risk of leasehold collateral. With low interest rates, leverage is more likely to be constrained by loan-to-value limits than debt service coverage. To bypass this constraint additional funding can be raised by carving sizeable ground rent strips out of higher-yielding properties for sale to third parties.
Fitch Ratings says social and governance risks have the most impact on its new environmental, social and governance relevance scores for structured finance and covered bonds (SF and CvB) ratings globally. Initial results show on aggregate 18% of transactions and programs across SF and CvB asset classes contain contributing ESG factors or credit rating drivers.
Our ESG Relevance Scores show the relevance and materiality of ESG to our rating decisions and are integrated into our ABS, CMBS and RMBS transaction reportsand covered bonds program research to transparently and consistently display the impact of ESG elements on our credit ratings.
With the U.S. CMBS 2.0 (post-2009 vintage) universe approaching its 10-year mark, the loans originated at the beginning of the cycle are nearing maturity. Nearly $24 billion of non-defeased loans within the Fitch-rated U.S. CMBS 2.0 conduit and Freddie Mac universe are scheduled to mature before the end of 2021, including $0.7 billion by YE 2019, $6.8 billion in 2020, and $16.6 billion in 2021.
Industry initiatives and adaptations in market practices continue in anticipation of the discontinuation of IBOR indices. But progress is uneven across jurisdictions and asset classes. For structured finance (SF), like other markets, key uncertainties relating to legacy contracts and transition in consumer products remain.
In this virtual investor meeting, Head of European CMBS, Euan Gatfield discusses what’s in store for the asset class for the rest of this year and how Brexit-related issues are affecting UK property values.
Today's historically low interest rate environment will benefit CMBS performance only if CMBS lenders maintain recent leverage metrics. Debt service coverage ratios will improve with lower coupons, all else being held equal. However, an increase in leverage, leaving DSCRs at their recent levels, would make the loans more susceptible to refinance risk at maturity due to the increased debt.
Hurricane Dorian is not expected to affect commercial mortgage backed securities (CMBS) and residential mortgage backed securities (RMBS) ratings due to pool diversification, servicer advancing, and insurance coverage, says Fitch Ratings. However, a hurricane season in which there are multiple severe storms may negatively affect loan performance if damage is widespread and severe and recovery is prolonged.
Fitch Ratings continues to monitor over $6 billion of rated U.S. CMBS exposure to more than 1,200 properties across Florida, Georgia, South Carolina and North Carolina with potential to be affected by Hurricane Dorian. Negative rating actions are not expected given servicer advancing, insurance coverage typical of CMBS loans and strong sponsorship among the larger exposures.
Total losses on US and Canadian structured finance (SF) bonds are concentrated in crisis-era transactions (2005-2007 vintages) and primarily consist of losses on US RMBS, Fitch Ratings says in a new report. Losses on SF tranches issued prior to 2009 contribute 99.9% of total SF losses. Approximately 95% of pre-crisis bond issuance is resolved (repaid or loss realized) or withdrawn.
As the broader retail sector continues its profound change, the ripple effect for U.S. CMBS is being felt even in malls that have survived thus far according to Fitch Ratings in its 2019 Virtual Investor Video Series for Structured Finance.
The recent earthquakes in southeast California are not expected to have any effect on the ratings of US residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS), says Fitch Ratings.
Student housing remains a subsector of concern in the Fitch-rated CMBS 2.0 universe and performance is expected to continue to fare worse than traditional multifamily in the near to medium term. Although student housing loans comprise less than 2% of the overall CMBS 2.0 universe, these loans have been the largest contributor to overall multifamily defaults.
U.S. CMBS 2.0 bonds rated 'AAAsf' and 'AAsf' would remain broadly resilient to significant commercial real estate valuation declines, according to a stress test report published today by Fitch Ratings. Given the increasing late cycle concerns and peak valuations, Fitch has stress-tested a representative sample of its rated U.S. CMBS 2.0 deals (2010 and later vintages) in the event of two hypothetical downturn scenarios of increasing severity.
Taking a more conservative ratings approach on malls in U.S. CMBS will prove to be a valuable preventative measure against downgrades over time as the evolving retail business model renders some malls obsolete and adversely affects others that have survived thus far
In this webinar we discuss findings from our annual US CMBS 2018 Loan Loss Study. Highlights will include loan loss severity rates, overall and by property type, as well as discussions on some of the larger and more interesting 2018 resolutions, and our outlook for the coming year.
Total losses on EMEA structured finance (SF) are low and are concentrated in certain crisis-era transactions, Fitch Ratings says in a new report. More than three-quarters of all expected losses have now been realised.
Adverse selection within the waning U.S. CMBS 1.0 universe - loans originated prior to 2009 - drives higher loss severities in 2018, according to Fitch Ratings annual U.S. CMBS loss study. While cumulative 2018 CMBS loss severities were in line with recent years at 45.6%, compared with 45.9% in 2017, average annual loss severity rose to 42.1% from 35.6% in 2017.
Fitch’s Chief Credit Officer, Jeremy Carter, and Group Credit Officer, Andreas Wilgen, discuss the progress which has been made to prepare financial markets for the discontinuation of IBOR indices and highlight the risks which still remain.
Now that CMBS 2.0 has several years of performance history, come listen to Bob Vrchota and Melissa Che discuss the differences between the performance of bank and nonbank originated loans that have defaulted to date. Join us as we discuss the drivers behind the loan defaults and gain insight on the timing of defaults.
Substantial progress in recent months will better prepare financial markets for the discontinuation of IBOR indices, but transition risks remain, Fitch Ratings says in a new report. Our ratings address the payment of interest (and principal) in accordance with the underlying terms of an obligation and would not be directly affected by transition from one reference rate to another or any accompanying spread adjustment.
More favorable treatment to Investment Grade (IG) tenants when analyzing loans in U.S. CMBS transactions given the lower expected default rate relative to below IG or unrated tenants. However, issuers and originators must verify that an IG entity is named on the lease, or an IG entity guarantees the lease of a property backing a U.S. CMBS loan to warrant the additional benefit that Fitch assigns to highly rated tenants.
Defaults and losses for Canadian CMBS loans remain very low despite the Great Recession, the 2014 global oil price decline and the Fort McMurray wildfires, according to Fitch Ratings in its latest Canadian CMBS loan default and loss study.
The structured finance markets in North America are positioned for another stable year in 2019; however, Fitch Ratings' outlook report points to several noteworthy external factors investors should consider.
Sears Holdings' Chapter 11 bankruptcy filing will likely place additional stress on the existing performance of already underperforming regional malls throughout the country, which, according to Fitch Ratings, means added stress on some of its rated U.S. CMBS. Across the Fitch-rated CMBS portfolio, the overall exposure to Sears and Kmart consists of 126 loans totaling approximately $6.6 billion securitized in 116 transactions.
Increasing loan prepayment and defeasance volume is largely driven by U.S. CMBS 2.0 borrowers continuing to take advantage of the current low interest rate environment and stable to improving property performance. Borrowers are acting in anticipation of further interest rate rises this year and in 2019. Fitch Ratings expects the trend to slow through 2019 in conjunction with each additional interest rate increase.
Late-cycle credit behaviour is manifesting in securitisations more frequently of late, which has triggered more unsolicited commentaries from Fitch Ratings on structured finance deals not rated by the agency and in certain sectors, according to the rating agency in a new report.
Negative rating actions are unlikely for roughly $3.4 billion of Fitch-rated U.S. CMBS with exposure to properties in Florida and Georgia affected by Hurricane Michael last week given servicer advancing, insurance coverage typical of CMBS loans and strong sponsorship among the larger affected properties, according to the rating agency's latest weekly U.S. CMBS newsletter.
Strong new issuance volume, along with steady loan resolution activity and minimal new delinquencies, fueled the fifth consecutive month of decline in the U.S. CMBS delinquency rate, according to the latest index results from Fitch Ratings.
This series features senior analysts across our structured finance teams answering the questions we regularly address in one-on-one investor meetings. It covers overall market trends, specific transaction performance, and broad economic issues to give you the insights and perspective you’d get at one of our in-person meetings.