Kroll Bond Rating Agency (KBRA) releases a commercial real estate (CRE) collateralized loan obligation (CLO) default and loss study, as the asset class enters its 10th year. The market segment has weathered its first major economic dislocation and is experiencing meaningful volume growth. In regard to the latter, 2021 will be a banner year with volume through June 2021 already surpassing the $19.2 billion record high set in full-year (FY) 2019.
Over the decade, $82.4 billion of CRE CLOs have been issued, providing a good opportunity to study loan defaults. KBRA reviewed the performance of 3,635 loans (study population) from securitization through the May 2021 trustee remittance report date (study period) across 115 seasoned transactions issued between July 1, 2013 and December 31, 2020. The study population had a cumulative payment default rate of 2.5% by loan count, and, inclusive of modifications and maturity defaults, a cumulative combined default rate of 7.8%.
In considering the results of the study, there are certain nuances that present challenges vis-à-vis fixed rate conduit CMBS. Notably, CRE CLO managers can generally choose to identify credit-impaired loans and purchase them from transactions prior or during the time in which they become a default. In addition, transactions are often called prior to all the loans paying off. In this report, we will highlight how these and other nuances of CRE CLOs may influence study observations.
Click here to view the report.
KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
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