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CRE Finance World, Summer 2013

A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 63 However, there is no way of knowing whether the riskiest of these loans are still outstanding. The high concentration of very large loans that were modified and then transferred back to the master servicer serves as a risk for legacy CMBS bonds entering their expected scheduled maturities. Nonetheless, given that there are over 7,198 loans that make up the loss severity statistics in CMBS, the 1049 outstanding modified loans (751 of which are back with the master servicer) would only slightly increase the severity averages in the worst case. The risk lies more in the specific CMBS transactions that have high concentrations of these modified outstanding loans. Chart 13 A/B Structures, Outstanding Balance As seen in Chart 13 over 54% of all outstanding A/B Note restructures come from just 10 CMBS transactions. The pools with the largest concentrations of these carry highly plausible risk to classes that were originally rated investment-grade just by expectations in performance of outstanding B-notes alone. Thus we still caution investors on modified A/B Note recoveries as results will vary greatly across loans and transactions. Chart 14 Of the A/B Note restructures that have been created through the modification process, the bulk (172 loans) remain outstanding, and the verdict of those that resolved is so far mixed: Resolved loans that took a significant loss (nine loans, 50% of the total count) had an average 26% loss severity on their trust loan balance, and a corresponding average 25% B-Note cut from the trust balance — the B-Notes were essentially wiped out. Nine of the resolved loans however had no loss, or losses less than 2%. There are also 11 loans that remain outstanding, but have taken a significant loss after having an A/B Note restructure modification at some point in their history. The loss severity on these loans averaged 26% (the same as the resolved loans) and they had a corresponding average 27% B-Note cut from their trust balance – again the B-Notes were essentially wiped out. In all 20 B-Notes have taken a significant loss with an average loss severity of 26% which was enough to wipe out (but not significantly exceed) their allocated modified B-Notes. There are 161 loans that remain outstanding with little or no loss – but the corresponding propensity is to take a loss once they are completely resolved. The servicers seem to have on average done an impeccable job at limiting the loss on resolved A/B Note restructures to their allocated B-Note amounts. Chart 15 B-Notes and Loss Severity However, with just 18 of 190 modified A/B Note restructured loans fully resolved, it is simply too early to draw firm conclusions. Anatomy of a Loss “As anticipated CMBS 1.0 loan maturities near investors should consider elevated numbers of modified loans, specially serviced loans and loans with obvious refinance risk given their relatively low debt yields.”


CRE Finance World, Summer 2013
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