KBRA Releases Research – CRE CLO Trend Watch: Issuance on Track to Surpass 2018; Performance Buoyed by Buyouts

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases the CRE CLO Trend Watch: Issuance on Track to Surpass 2018; Performance Buoyed by Buyouts report, which discusses notable trends in the space.

Issuance is on pace to exceed full-year (FY) 2018 volume with the closing of seven deals in Q3, bringing the year-to-date (YTD) count to 21, just four short of FY 2018. We currently have visibility into 10 deals that will close or launch this quarter and we expect FY 2019 issuance could exceed $19.3 billion, up nearly 40% above last year’s $13.9 billion. In addition, three of the 10 deals are expected to be issued by new commercial real estate collateralized loan obligation (CRE CLO) sponsors.

Below we highlight notable trends and events among the new transactions and in our surveillance portfolio:

• Average KBRA loan-to-value (KLTV) of the deals rated in Q3 2019 was up 5% over 1H 2019 but was in range of where the rolling 3-month average has been over the past year. Loan spreads held steady at tight levels; generally consistent for much of the year.
• The amount of future funding was relatively low among KBRA-rated deals issued in Q3, driven mostly by Greystone 2019-FL2 which only included one loan with future funding in the pool.
• Delinquency rates in CRE CLOs remain low, partly due to the ability of the sponsor to purchase defaulted mortgage assets and credit risk mortgage assets out of the trust. KBRA has received notice of 10 buyouts YTD, including five loans in Q3 totaling $161.9 million.
• Of the nine KBRA-rated CRE CLOs issued in 2017, four deals have paid off, including two during Q3. Another two deals, with significant paydowns, will have optional redemption dates in Q4, at which time we believe they would likely be paid off.
• The 17 managed deals in KBRA’s rated portfolio acquired 64 new loans in Q3, with a total funded in-trust balance of $1.1 billion. The total loan commitment exceeded $1.5 billion, including $91.6 million of pari passu future funding. This brings total reinvestments in new mortgages so far this year to $2.4 billion, which equates to over 10% of the outstanding balance for KBRA-rated CRE CLOs. To help investors track the newly acquired mortgage assets, we have included a CRE CLO Ramp-Up and Reinvestment spreadsheet as part of this edition’s CRE CLO KCAT.
• As a result of investor feedback related to issuers’ ability to change important terms in the indenture without affirmative consent, several issuers have made changes to the way indentures are amended when security holder consent is required. This came after recent attempts by issuers to amend certain eligibility criteria terms in their transactions to be more in line with criteria in recent deals, most notably a reduced weighted average loan spread requirement.

To view the report, click here.

Related Publications: (available at www.kbra.com)

• CRE CLO Trend Watch: Strong Q2 2019 Issuance as Deals Evolve and Loans Churn
• CRE CLO Ramp-Up: From Beginning to End With More of the Same … So Far
• CRE CLO Experiencing Sizeable Prepayments
• Managed CRE CLO Eligibility Criteria: An Inside Look

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

Contacts

Analytical Contacts:

Margit Grejdus, Director

(215) 882-5850

mgrejdus@kbra.com

Roy Chun, Managing Director

(646) 731-2376

rchun@kbra.com

Nitin Bhasin, CFA, Senior Managing Director

(646) 731-2334

nbhasin@kbra.com

Eric Thompson, Senior Managing Director

(646) 731-2355

ethompson@kbra.com

Business Development Contact:

Michele Patterson, Managing Director

(646) 731-2397

mpatterson@kbra.com