Fitch: U.S. CREL CDO Delinquencies Continue to Rise

NEW YORK, NY, April 20, 2009--Twenty-one newly delinquent assets led to an increase in U.S. commercial real estate loan (CREL) CDO delinquencies to 6.5% for March 2009, up from 5.4% in February 2009, according to the latest CREL CDO delinquency index (CREL DI) from Fitch Ratings.

Fitch currently rates 35 CREL CDOs encompassing approximately 1,100 loans and 370 rated securities/assets with a balance of $23.8 billion.

28 CREL CDOs contained at least one delinquent loan with individual delinquency rates ranging from less than 1% to 22.1% of the CDO par balance, as of the March 2009 reporting period.

Fitch continues to monitor CDO delinquencies on a monthly basis. Since September 2008, Fitch has taken negative actions on 20 of its 35 Fitch-rated CREL transactions with more downgrades and Negative Rating Watches anticipated as transactions are reviewed.

In contrast to the recent trend of limited repurchases, six assets (27 basis points of the CREL DI) were repurchased from three different CDOs in the March reporting period.

One asset manager repurchased two assets from its CDO at par, while the four other assets from two different CDOs were repurchased at an average discount to par of 46.3%, including one defaulted security that was repurchased at 0.001% of par.

Many CDOs allow for repurchases at prices below par based on market pricing or third party opinion of value.

The repurchases were likely prompted by an effort to maintain cushion in par value tests, thus avoiding the diversion of cash flow from the CDO’s preference shares.

While only one repurchased asset was haircut in the prior month for purposes of its CDO’s par value calculation; the remaining assets were expected to be haircut imminently based on their impaired statuses.

In most cases, new higher rated assets were traded into the CDO at a discount within a few days of the repurchases to re-build the total CDO par. Fitch considers asset purchase prices in its evaluation of CDO collateral.

‘Further maturity defaults are likely as the illiquid credit markets provide limited prospects for the payoff of loans,’ said Senior Director Karen Trebach.

Excluding the repurchased assets, nearly all of the new additions to the CREL DI consist of matured balloon loans.

Further, reported loan extensions decreased to 21 for the month, down from 37 in February, and more in line with the prior two months’ totals.

Non-cash flowing property types comprise the highest percentage of assets in the CREL DI. Loans backed by interests in land are now the highest percentage of assets in the CREL DI at approximately 32%.

Condominium conversions and construction loans comprise an additional 11.1%. ‘Under the current credit market conditions, Fitch anticipates increased defaults on land loans as debt service reserves burn off and business plans fail to actualize,’ said Trebach.

The CREL DI includes loans that are 60 days or longer delinquent, matured balloon loans, and the current month's repurchased assets.

Contacts:

Karen Trebach +1-212-908-0215 or

Stacey McGovern +1-212-908-0722, New York.

Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278.