KBRA Releases Research – CRE Securitization: Transitioning Away From LIBOR

NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases its CRE Securitization: Transitioning Away From LIBOR report, which covers the issues and challenges faced by commercial real estate (CRE) securitizations due to the cessation of the LIBOR benchmark. The report also outlines some of the issues that KBRA-rated deals may encounter, with a focus on single asset single borrower (SASB) and CRE collateralized loan obligations (CRE CLO) transactions, which represent the bulk of KBRA’s rated CRE securitization exposure to LIBOR.

With LIBOR scheduled to expire at the close of 2021, KBRA continues to monitor its LIBOR-related exposure across multiple asset classes under the operative assumption that floating rate transactions are generally ratable. For reasons explained in the report, KBRA does not expect to engage in widespread rating actions or Watch placements due to the cessation of LIBOR. However, there are a number of hurdles related to the adoption of a replacement rate, including operational challenges, which could prompt rating actions on individual transactions.

KBRA currently rates 96 CRE securitizations with bonds and/or loans indexed to LIBOR, with an aggregate unpaid balance of $41.3 billion. The deals are generally concentrated among floating rate SASB transactions and CRE CLOs. However, there are a number of other exposure areas including single-family rental securitizations, fixed/floating rate exchangeable certificates in conduits issued between 2013 and 2016, large loan transactions, small balance commercial, and Freddie Mac floating rate transactions.

The report also highlights aspects of the Secured Overnight Financing Rate, the assumptive replacement benchmark.

To access the report, click here.

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

• CMBS Trend Watch, December 2019
• CRE CLO Trend Watch: 2019 Issuance Up; Subordination Levels Down
• CRE CLO Research Handbook

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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:

Roy Chun, Managing Director

(646) 731-2376

rchun@kbra.com

Susannah Keagle, Senior Director

(646) 731-3357

skeagle@kbra.com

Mimi Ophir, Director

(646) 731-3383

mophir@kbra.com

Eric Thompson, CFA Senior Managing Director

(646) 731-2355

ethompson@kbra.com

Business Development Contact:

Michele Patterson, Managing Director

(646) 731-2397

mpatterson@KBRA.com