Losses Piling Up in Collateralized Debt Obligations of CRE Loans

Delinquencies and losses on commercial real estate loan collateralized debt obligations (CREL CDOs) increased notably in April, according to the latest U.S. CREL CDO index results from ""Fitch Ratings"":http://www.fitchratings.com.

CREL CDO asset managers reported approximately $164 million in realized losses from the disposal of defaulted and credit-impaired assets, which is substantially higher than March's total of $73 million.

CREL CDO realized losses total approximately 9 percent of par (based on original fully ramped collateral). Modeled[IMAGE] [COLUMN_BREAK]

expected losses on Fitch Ratings' portfolio average 36.1 percent.

""Many of the realized losses stemmed from foreclosure or deed in lieu of foreclosure actions that wiped out subordinate positions held by some CREL CDOs,"" explained Stacey McGovern, a director at New York-based Fitch Ratings.

CREL CDO delinquencies rose to 14.8 percent in April from 14.1 percent in March, according to Fitch.

While 18 assets fell out of the index through resolution at a loss, payoff, or extension, more assets became delinquent.

""The CREL CDO delinquency rate is likely to fluctuate between 13 percent and 16 percent for the remainder of the year as asset managers continue to resolve troubled assets,"" McGovern said.

New April delinquencies consisted of eight repurchased assets, four matured balloon loans, 13 newly credit impaired securities, and five term defaults.

In April, 33 of the 34 CREL CDOs rated by Fitch reported delinquencies ranging from 1.5 percent to 45.2 percent.