Six Canadian CMBS deals in the line of fire

Sweeping wildfires have led Fitch Ratings to place six CMBS transactions backed by properties in Alberta, Canada on watch. The wildfires, ignited by an unusually dry winter, have been ravaging the oil town of Fort McMurray in Alberta, Canada the past several days.

Sweeping wildfires have led Fitch Ratings to place six CMBS transactions backed by properties in Alberta, Canada on watch.

The wildfires, ignited by an unusually dry winter, have been ravaging the oil town of Fort McMurray in Alberta, Canada the past several days, causing a forced evacuation of all town residents and destroying over a thousand local buildings.

Fort McMurray, Alberta, Canada
Fort McMurray, Alberta, Canada

Of the six transactions with exposure to properties in Fort McMurray, Alberta — CMLS 2014-1, IMSCI 2012-2, IMSCI 2013-3, IMSCI 2013-4, IMSCI 2014-5, and REAL-T 2014-1 — the rating agency placed nine classes on Rating Watch Negative and five classes on Negative Outlooks.

That wildfires are particularly concerning given the already significant impacts of drops in oil prices in the region.

“The Rating Watch Negative placements and Negative Outlooks are due to the uncertainty regarding operations and ultimate recoveries of the properties,” read the report. “Fitch will continue to monitor the impact of oil prices and the current wildfires on the properties.”

Fitch identified a total of nine Loans of Concern, including six collateralized by multi-family properties totaling $66.2 million CAD (Canadian dollars) that have been in special servicing since March 2016 after the sponsor indicated an inability to pay debt after the properties’ vacancy rates increased due to the volatility in the energy industry.

The remaining Loans of Concern include two backed by hotels totaling $19.3 million CAD, sponsored by Temple REIT, and one by an industrial property $11.7 million CAD, backed by Imperial Equities.

The agency also noted that in the future, additional classes may be placed on Rating Watch or assigned Negative Outlooks “if loss expectations exceed Fitch’s conservative estimates.”

The Canadian CMBS market is small ($4.8 billion of issuance at its 2006 peak) and less volatile compared to its counterpart market in the US, said experts on a CREFC Miami conference panel last year.

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