CMBS: Refinance risk
by Stuart Nelson, credit analyst, Standard & Poor’s .
The exposure of outstanding European CMBS programme loans to refinance risk is something we have highlighted for some time (European CMBS refinance risk Part I: storing up trouble for the future; R. Fox et al, Jun 15 2006), and that risk has hardly decreased, with €35 billion of debt now due to be refinanced in the period 2011-13. And while in general coverage ratios remain healthy, increasing issuance volumes mean that the sheer number of loans now securitized implies greater exposure to event risk over the term, a fact witnessed by the fact that ratings performance – historically positive in Europe due to favourable payment structures in the light of heavy prepayments – has seen some negative trends during early 2007. That being said, we have seen nothing yet that would lead us to conclude that average ratings performance will deviate from that expected.