Late pays for U.S. commercial real estate loan collateralized debt obligations (CREL CDOs) finished 2011 at a lower level than in 2010, according to the latest index results from Fitch Ratings.
CREL CDO delinquencies for December came in at 12.5%, down from 13.6% at December 2010 and a 14.8% peak in April 2011. The senior-most tranches of 68% of Fitch-rated CREL CDOs have either a stable or positive outlook. However, ratings on the most-junior classes remain subject to volatility as losses continue to accumulate.
As of year-end 2011, only one-third of Fitch-rated CREL CDOs were still in their reinvestment periods. Total CREL CDO collateral is down by $2.3 billion since 2010, including cumulative reported realized losses of approximately $710 million (3.4% of the total collateral) over the same period. An estimated $1.1 billion were recoveries on defaulted assets with close to $500 million in repayments. All remaining Fitch-rated CREL CDOs exit their reinvestment periods in 2012.
Non-cash flowing property types, including loans on land, condominium conversions and construction properties, continue to have the highest overall delinquency rates in the Fitch Ratings CREL CDO universe. However, the total balance of these property types has declined by 34% since last year, a large percentage of which is due to the disposal of assets, which had realized losses.
At the end of last year, 31 of the 33 CREL CDOs rated by Fitch Ratings reported delinquencies ranging from 1.3% to 61.7%. Additionally, 40% of Fitch-rated CREL CDOs were failing at least one overcollateralization test. Failure of overcollateralization tests leads to the cutoff of interest payments to subordinate classes, including preferred shares, which are typically held by the CDO asset managers. These proceeds, along with collected principal proceeds, are then diverted to pay down the senior classes.