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CRE Finance World, Summer 2014

• There were two times as many loans in this KDSC category within the 11-20 bucket in Q4 2013 versus YE 2012. During this period KDSC dropped to 1.12x from 1.16x in 2012, and KLTVs increased almost seven points to 115.4%. In the greater than 1.20x category: • On a year-over-year basis, the top 10 loans had the best performance with nearly a 22 bps increase to 1.87x, which was partially attributable to a 60 bps change in weighted average coupon. The increase in KDSC was also attributable to the increased population of full term IO loans among the top 10, which was highlighted in the Amortization section. • In Q4 2013, the top 10 loans greater than 1.20x was 84.3%, almost a 15% decline from the 98.8% average of the previous three quarters. • Quality of the 11-20 loans weakened in Q4 as KDSC slipped to 1.52x versus the average of 1.69x over the previous three quarters. Leverage for these loans also increased 2 points, falling just short of the 100% threshold at 99.8% over the same time period. Chart 7 KDSC Loan Distribution1,2,3 1.00x>=DSC<1.20x The number on top of the bars represent the number of loans in that period with KDSC between 1.00x>=DSC<1.20x. 1 The credit metrics for Q1 2014 are for all conduit transactions rated by KBRA through February 14, 2014. 2 The Top 10 did not have loans with KDSC between 1.00x>=DSC<1.20x during the Q1 and Q3 2013. 3 The 11-20 loans did not have loans with KDSC between 1.00x>=DSC<1.20x during the Q1 and Q2 2013. Source: KBRA CRE Finance World Summer 2014 26 Chart 8 KDSC Loan Distribution1 DSC<1.20x The number on top of the bars represent the number of loans in that period with KDSC between 1.00x>=DSC<1.20x. 1 The credit metrics for Q1 2014 are for all conduit transactions rated by KBRA through February 14, 2014. Closing Thoughts As we have seen from the profile of the largest 20 loans, credit metrics deteriorated in 2013, and the trajectory of the slippage seemed to accelerate in Q1 2014. This should be no surprise to the market, as a recent MBA CREF Outlook Survey indicated more than 90% of CRE lenders believe loans originated in 2014 will be “medium” to “somewhat high” risk loans. New market entrants will likely continue to put pressure on credit. As the year evolves we will continue to look below the surface to find and assess the inherent risk within CMBS pools. We will keep the market apprised our findings, including breakdowns of the Top 20 loans, in our monthly publication KBRA Trend Watch. Notes: All metrics are weighted by cutoff date loan balance, where applicable Cross-collateralized and cross-defaulted loans, if any, are considered as one loan for calculation of all metrics. Acronym Key: Term Definition KBRA Kroll Bond Rating Agency, Inc. KLTV KBRA Loan-To-Value. KLTV = Loan amount/KValue KDSC KBRA Debt Service Coverage. KDSC = KNCF/Highest annual debt service of the loan 1 As reported in Commercial Mortgage Alert on January 31, 2014. A View from the Top: Key Credit Metrics of the Largest 20 Loans


CRE Finance World, Summer 2014
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