Late payments on commercial property loans packaged into collateralized debt obligations climbed 0.7 basis points to 14.8 percent last month, according to Fitch Ratings.
Losses on the debt pools were about $164 million in April, compared with $73 million the prior month, Fitch said in a report today. Delinquencies will likely “fluctuate” between 13 percent and 16 percent for the rest of the year, according to the New York-based rating company.
Late payments within CDOs, which pool assets and slice then into securities of varying risk, have surged from below 1 percent in April 2008 as borrowers struggled to refinance after property values plunged. The Moody’s/REAL Commercial Property Price Index down is down about 44.6 percent from the peak of October 2007.
The largest loss in the securities last month occurred after a senior lender took a “deed in lieu,” or voluntary dispossession, on land located near the Las Vegas Strip, which led investors in two CDOs to write their investment to zero, Fitch said.
“Many of the realized losses stemmed from foreclosure or deed in lieu of foreclosure actions that wiped out subordinate positions,” held by some CDOs, Fitch analyst Stacey McGovern said in the report.
Sales of CDOs linked to commercial real estate debt climbed to $35 billion in 2006 from $16.1 billion in 2005, according to Credit Suisse Group AG data. Another $35 billion was sold in 2007, the data show. Offerings plummeted after the financial crisis. There have been no newly issued CDOs linked to commercial property loans since 2007, according to Credit Suisse.
CDOs tied to home loans have been the focus of Securities and Exchange Commission investigations into how banks bundled and sold investments backed by risky mortgages. Such debt helped trigger a seizure in credit markets that has led to $2 trillion in credit losses and writedowns at financial institutions worldwide.
By Sarah Mulholland, Bloomberg
