KBRA Releases Research – Loan Drops Reverse Course But Remain at High Levels

Kroll Bond Rating Agency (KBRA) releases its Loan Drops Reverse Course But Remain at High Levels report, an updated examination of how the composition of CMBS conduit pools change over the course of the rating process. In this report, KBRA updates its analysis to include 2018 and 2019 transactions.

Between preliminary and final feedback to an issuer on various credit aspects of a transaction, its composition typically changes. In 2019, the percentage of loans dropped (from preliminary feedback) and based on cutoff balance increased to 39.4%, versus 25.1% in 2017. Lodging had the highest proportion of drops in 2019 (46.6%), up 18.6% versus the prior year. Although the frequency of loan drops is higher among unfunded loans, the frequency among funded loans increased in 2018 and 2019, to 29% and 31.1%, respectively, compared to 16.8% (2017) and 17% (2016).

In this update, many of our findings are consistent with those noted in previous publications. Below we list some of the notable findings regarding 2019 issuance:

• There were fewer loan drops among three property types: manufactured housing community (45.6%), industrial (17.4%), and office (16.3%).
• The frequency of loan drops increased for two property types: lodging (18.6%) and self-storage (14.6%).
• The frequency of loan drops for assets located in a primary market fell 11.8%, while those located in tertiary markets increased 7.9%.
• The frequency of loan drops for bank and nonbank-originated loans fell 5% and 15.1%, respectively.
• The number of dropped loans that was ultimately securitized in subsequent transactions remained stable in 2019.
• To the extent a dropped loan was subsequently securitized, a higher percentage of such loans were securitized in another transaction in a relatively shorter time period.
• Among the dropped loans that were eventually securitized, a lower percentage of such loans were contributed by a different lender.

To view the report, click here.

Related Publications:

• Loans Stickier Despite Increased Pool Movement
• Despite Turbulence, Loan Drops Flat in 2016
• Not All Loans Make the Final Cut

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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