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Fitch: 23% of Maturing Conduit CMBS Unlikely to Refinance
Maturing US CMBS loans have elevated refinancing risk with rising interest rates and a weakening macroeconomic outlook, Fitch Ratings says. Among nearly $26.5 billion, non-defaulted and non-defeased conduit and agency loans within Fitch-rated multiborrower transactions scheduled to mature by year-end 2023, the rating agency sees trouble ahead for 23%, or $6.2 billion, of the loans.
Fitch conducted three plausible scenarios to determine if the loans are able to meet certain debt service coverage ratio (DSCR) and loan-to-value (LTV) parameters in order to secure refinancing. At a 6.75% market interest rate, 65% to 68% of the maturing loan volume could satisfy the two DSCR scenarios, based on a threshold of 1.25x for an amortizing loan and 1.40x for an interest-only loan. In the LTV scenario, which sets a maximum 75% LTV, 72% is able to secure refinancing based on current market capitalization rates.
For 23% of the maturing loans, though, NOI growth averaging at least 1.5x current in-place NOI, or a new equity infusion that deleverages existing debt by at least one-third, on average, would be needed to pass the refinancing thresholds. Absent these circumstances, the loans would be unable to refinance.
“We expect servicers will grant loan modifications and extensions for stable performing assets and those with committed borrowers,” according to Fitch. “Fitch believes servicers are appropriately staffed to address the $6.2 billion of potential maturity defaults for loans unable to refinance under any of the scenarios, which is below the peak volume of coronavirus-related transfers to special servicing in 2020 and 2021.”
- ◦Financing
