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KBRA Releases CRE CLO Trend Watch on Q1 2019 Activity
[April 22, 2019]

KBRA Releases CRE CLO Trend Watch on Q1 2019 Activity


Kroll Bond Rating Agency (KBRA) releases CRE CLO Trend Watch on Steady Issuance and Performance in Q1 2019.

A total of six commercial real estate collateralized loan obligations (CRE CLO) deals closed in Q1 2019. While this is the same number that closed in Q1 2018, total dollar transaction volume, at $3.6 billion, was up 12.5% year-over-year in Q1 2019. Looking ahead, we currently have visibility into five additional transactions in Q2 2019, which would bring 1H 2019 volume at around $6 billion to $7 billion, on pace with 1H 2018 issuance volume of $6.9 billion.

KBRA rated four of the six deals that closed in the period. Below we highlight notable trends among the four transactions as well as in our surveillance portfolio:

  • In-trust leverage appeared steady as three of the four deals came from sponsors who previously issued 2018 transactions with similar KBRA loan-to-value (KLTV) to their 2019 deals so far.
  • Loan margins continued to tighten. Average loan spread in the four KBRA-rated transactions was 3.49%, which compares to 4.11% in KBRA-rated deals in Q4 2018.
  • There was an increase in the extent of work needed to reach stabilization, as measured by the amount of future funding in the transactions. Future funding as a percent of total funding increased to 13.0% in Q1 2019 from 9.7% in the prior quarter.
  • On the surveillance front, two loans were purchased out of their respective transactions just prior to becoming defaulted mortgage assets. The defaults could have led to par value test failures if they were not purchased. Notably, these are the first two instances of loans purchased out of a trust among our rated CRE CLOs.
  • Sizeable prepayments led to positive changes in transaction subordination levels and resulted in both upgrades and Watch Upgrades across eight transactions.
  • The 13 managed deals in KBRA's rated portfolio engaged in acquiring 21 new loans, with a total outstanding funded in-trust balance of $494.7 million.

To view the report, click here.



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

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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.


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