High leverage will put brakes on 2010 repayment of maturing CMBS loans

Repayment of mature European CMBS loans will remain at low levels at least until the end of the year, mainly because of the loans’ high leverage, according to Fitch Ratings.

A further 73 loans worth €3.22bn (£2.86bn) are due to expire this year, bringing the total for the year to 5% of total European securitised debt, 49 of which have loan-to-value ratios above 80%.

This means significant equity contributions will be needed to refinance the loans, as well as an improvement in bank appetite for commercial property debt. Fortunately, the average size of loans maturing this year is €50m only one is greater than €200m.

Just 34 loans have reached their maturity dates since the start of 2009. Ten resulted in repayments, and each one was originated in 2005 or earlier.

“This bodes well for 2010, as 51 of the loans maturing in the rest of the year are from early vintages, but early origination dates do not guarantee orderly repayment,” said Gioia Dominedo, senior director in Fitch’s European CMBS team.

“Factors affecting the viability of refinancing – in particular, leverage and loan size – are crucial when determining likely maturity outcomes.” Fitch expects most of the loans due to mature this year to be extended and only 1% to be fully repaid on time.

It predicts that 19% of loans with high LTV ratios, low interest coverage ratios, or both, will go into work-outs. Fitch’s April loan maturity bulletin shows that none of the 11, mainly retail-backed loans scheduled to mature this month are likely to be repaid, although a small number could be repaid at some point this year.

This is because almost 80% of the loans, backed by UK and German assets, have LTV ratios of 90% or higher, making their refinancing difficult. The likely outcome for one of the largest loans, the €344.7m

Project Christie (Titan Europe 2001-2) – secured on four multilet German retail schemes – is a second, one-year loan maturity extension by the borrower. Servicers remain reluctant to foreclose and realise losses, and will continue to extend loans in the short term.

Last month’s Fleet Street Finance 2 restructuring set a precedent for extending CMBS bonds, but this is a less viable solution, as it requires note holders’ agreement.

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