(The following statement was released by the rating agency)
March 01 -
-- Borrowers failed to repay EUR2.6 billion (equivalent) of the EUR3.2 billion (equivalent) of loans that matured in January 2012 and, if maturing loans continue at that rate, the unpaid balance for 2012 could be as high as EUR10 billion.
-- Record numbers of loans entered our delinquencies and special servicing indices and, if maturing loans continue to default at January’s rate, the number of loans in delinquency and special servicing could be as high as 165 and 200, respectively, by the end of 2012.
-- For the first time, a liquidity facility event of default has been declared in European CMBS, raising the specter of interest shortfalls for Titan Europe 2006-1, and potential knock-on effects for other transactions.
January was a month of records for the European commercial mortgage-backed securities (CMBS) that Standard & Poor’s Ratings Services rates--in terms of loan maturity performance, delinquency, and special servicing, as well as note-level matters.
Of the 51 loans that were scheduled to mature in January, borrowers failed to repay 38. In monetary terms, they failed to repay about EUR3 billion (equivalent) of the EUR3.7 billion (equivalent) that was due. Our records show that the unpaid rate (of loans that defaulted, extended, or went into standstill) of the 12-month-rolling maturing universe has climbed to the unprecedented level of 50%.
However, if loans continue to repay at their January rate of one in four, and are not resolved by year end, the unpaid balance for 2012’s maturing loans could be as high as EUR10 billion (equivalent)--adding to the current unpaid balance of EUR4.7 billion (equivalent) of loans that matured between 2009 and 2011. In our view, this can only compound the competition for finance that borrowers of newly maturing loans will face in 2013, when they will be seeking EUR24.3 billion to meet their maturity obligations.
This poor performance has caused record numbers of loans to enter our delinquencies and special servicing indices in January.
Servicers declared 20 new delinquencies--a jump from the previous all-time monthly high of 12 in April 2011. There are now 102 loans in our delinquencies index, compared with 63 this time last year. We also transferred 17 loans to our special servicing index--a spike of almost 50% from the previous monthly record of 12 in April 2011. There are now 132 loans in our special servicing index, compared with 81 this time last year.
If maturing loans continue to default at January’s rate, absent resolutions in the interim, the number of loans in delinquency and special servicing could be as high as 165 and 200, respectively, by year end.
Since January, at the note level, we saw other firsts: The liquidity provider in Titan Europe 2006-1 PLC (HSBC Bank PLC) declared a liquidity facility event of default, raising the specter of interest shortfalls on the next interest payment date and thereafter. We are monitoring this to see what it may mean for liquidity arrangements in this transaction and for European CMBS in general.
Additionally, all notes in Opera Finance (Uni-Invest) B.V. failed to repay at their maturity date. We lowered our ratings on these notes to ‘D (sf)’ as a result (see “Ratings Lowered To ‘D (sf)’ On Class A, B, C, And D Notes In Dutch CMBS Transaction Opera Finance (Uni-Invest),” published on Feb. 17, 2012).
-- European CMBS Monthly Bulletin (February 2012): Could Unpaid Debt Exceed EUR10 Billion In 2012?, Feb. 29, 2012
-- Ratings Lowered To ‘D (sf)’ On Class A, B, C, And D Notes In Dutch CMBS Transaction Opera Finance (Uni-Invest), Feb. 17, 2012