July's delinquency rate for U.S. commercial real estate loan collateralized debt obligations (CREL CDOs) marked the third straight month of decline, according to the latest index results from Fitch Ratings.
In July, U.S. CREL CDO delinquencies fell to 12.1% from 12.3% in June. Six new delinquent loans were offset by 13 assets removed from the index.
Fitch Ratings determines that the majority of CREL CDO portfolios are now static. As of the July reporting period, only four Fitch-rated CREL CDOs remained in their reinvestment periods; two of which are scheduled to exit in the next month while the others are unable to reinvest due to failing over-collateralization tests.
In total, asset managers reported approximately $60 million in realized losses in July from the disposal of defaulted and credit risk assets. Average recoveries on these assets, which were primarily subordinate debt interests, were 19%. The largest loss was related to the significantly discounted sale of a mezzanine loan backed by an over-leveraged hotel located in Hawaii. The loan defaulted earlier this year at loan maturity.Â
There were 28 Fitch-rated CREL CDOs that reported delinquencies ranging from 0.2% to 59.6% last month. Additionally, 38% of rated CREL CDOs were failing at least one over-collateralization test.
‘As such, the majority of incoming principal proceeds are being used to pay down the senior classes of the transactions,’ reports Fitch Ratings. ‘To date, the average pay down to the senior classes of all currently rated CREL CDOs is approximately 50 percent, with six transactions having senior classes paid in full.’