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KBRA Releases Research - CRE CLO Trend Watch: Strong Q2 2019 Issuance as Deals Evolve and Loans Churn
[July 11, 2019]

KBRA Releases Research - CRE CLO Trend Watch: Strong Q2 2019 Issuance as Deals Evolve and Loans Churn


Kroll Bond Rating Agency (KBRA) releases the CRE CLO Trend Watch: Strong Q2 2019 Issuance as Deals Evolve and Loans Churn report, which discusses notable trends in the space.

Issuance accelerated in Q2 2019, with eight commercial real estate collateralized loan obligations (CRE CLO) compared to the six in the prior quarter. This puts the sector on track to equal or surpass last year's transaction count of 25 deals. Even more striking is that with the flurry of Q2 issuance, 1H 2019 volume of $9.1 billion is more than 30% ahead of the $6.9 billion issued in 1H 2018. Looking ahead, we currently have visibility into eight transactions, many of which will launch this summer. This would bring issuance volumes within striking distance of last year's total volume of $13.9 billion.

In the report we highlight notable trends and events among the new transactions as well as in our surveillance portfolio including the following:

  • Average KBRA loan-to-value (KLTV) was down slightly in Q2 2019 transactions versus Q1 2019. The KLTV decline among newly issued KBRA-rated deals was largely attributable to GACM 2019-FL1, which had the third lowest KLTV of any KBRA-rated CRE CLO. The decline was also influenced by the mix of transaction sponsors, as some that may originate with higher leverage were either not KBRA-rated and/or not in the market.
  • Issuers continue to tweak deal provisions as the sector seasons and managers look for ways to streamline and add flexibility to the reinvestment process. Some of this flexibility, however, can potentially allow for additional credit drift without some of the protections that have been built into earlier deals. One such evolution being sought by issuers is to expand the ability to effectuate performing loan modifications.
  • The 16 managed deals in KBRA's rated portfolio acquired 46 new loans, with a total funded in-trust balance of $947.1 million. The total loan commitment exceeded $1.6 billion, including $167.3 million of pari passu future funding. As with KLTV for new issue deals rated in Q2 versus Q1, we observed a decline in the KLTV of ramp-up and reinvestment assets. To help investors track the newly acquired mortgage assets, we have included a CRE CLO Ramp-Up and Reinvestment spreadsheet as part of this quarter's CRE CLO KCAT.
  • A couple of firsts that we observed this quarter occurred at the asset level, including one isuer who acquired a loan in which the chief executive of the CRE CLO issuer was also affiliated with the borrower; the issuer took certain actions to mitigate the related conflict of interest. In addition, there was a delayed close asset, which significantly changed from what was initially presented to KBRA and investors prior to securitization. To date, the terms of delayed close assets have been fairly consistent with what issuers have presented prior to issuance.



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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