KBRA Releases Research – Coronavirus (COVID-19): CMBS Interest Shortfalls Rise in COVID’s Wake

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases a report on the rise of interest shortfalls in U.S. commercial mortgage-backed securities (CMBS). More than 85% (225) of the 263 deals in KBRA’s rated conduit universe have been impacted by interest shortfalls to varying degrees. Prior to the pandemic, shortfalls occurred in just over 40% (110) of the conduits as of February 2020. The increase is not surprising as interest shortfalls are generally driven by delinquent and specially serviced loans. Since the pandemic, KBRA has observed its rated conduit delinquency increase nearly eightfold to 7.9% and the specially serviced loan population reached a high of 8.2% as of the October 2020 reporting period.

As interest shortfalls have become more commonplace, this is affecting more classes in the capital structure. There were 278 classes impacted across the 225 deals as of October 2020, representing a ratio of 1.2 classes per deal. In February 2020, the same ratio was less than 1.1 (121 classes across 110 deals). While the shortfalls have generally affected the first loss (unrated) class, KBRA has observed a large increase in shortfalls on rated classes. There were 40 such classes (14.4% of all classes with shortfalls) in October, compared to just eight (6.6%) in February. During the same period, the outstanding principal balance of securities affected has more than doubled to $9.1 billion from $4.2 billion.

In the report, KBRA examines some common drivers of shortfalls, how they can be recovered, and the potential rating implications.

To view the report, click here.

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) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe is located at 6-8 College Green, Dublin 2, Ireland.