Fitch: A/B Note Resolution Losses Rising for U.S. CMBS

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: A/B Loan Modification Update (Many Loans Re-Transfer to Special Servicing; Higher Losses Expected)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882202

As additional modified A/B notes are resolved loss severities are increasing for U.S. CMBS, a trend Fitch Ratings expects to continue according to a new report.

A/B loan modifications have become a less common workout strategy among special servicers over the past two years as many underperforming legacy loans have already been modified and liquidity has returned to the market. Approximately $1.15 billion of loans were modified into A/B notes in 2014 and 2015, which is one-third of the peak volume of $3.58 billion in A/B modifications in 2011. 'We've been seeing an uptick in CMBS loss severities of late as modified A/B loans are transferring back to special servicing,' said Director Melissa Che.

Loss severities are likely to continue increasing as modified A/B loans transfer back to special servicing. The primary reason: adverse selection. 'Many A/B loan modifications have still not stabilized and are unlikely to be able to refinance in the current market,' said Che. If the outstanding B notes are considered writedowns, the loss severity for A/B loans would be approximately 23%. As for ratings impact, there's not likely to be any as Fitch typically models no recoveries on the subordinate B notes.

Fitch has identified 26 previously modified A/B loans ($2.14 billion) as transferring back to the special servicer post-modification. Of that total, 16 transfers took place in the last two years. Fitch has identified 186 loans ($11.73 billion) that were modified into A/B loans within the Fitch-rated CMBS conduit universe.

Fitch's 'A/B Loan Modification Update' is available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available on www.fitchratings.com

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160607006155/en/

Fitch Ratings
Melissa Che
Director
+1-212-612-7862
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY, 10004
or
Mary MacNeill
Managing Director
+1-212-908-0785
or
Media Relations:
Hannah James, +1 646-582-4947
[email protected]

Source: Fitch Ratings

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