Commercial mortgage-backed securities market metrics when it comes to new issuance are stable compared to the previous quarter, but are worse than those seen a year ago, according to Fitch Ratings latest quarterly report.
Compared to last year, Fitch finds deals have more interest-only loans and more loans that have or allow additional debt and has increased the credit enhancement required for securities to attain its top rating in response.
“The increase in IO loans from a year ago makes average debt service coverage ratios look better,” said Fitch managing director Huxley Somerville in a press release. “However, the loans are poorer in quality and the Fitch [loan-to-value] ratio, which is up from a year ago, should also be considered.”
Fitch also noted that rates so far look relatively stable in 2Q compared to 1Q but it expects early summer rate increases to register in 3Q metrics. The company said it will “continue to closely watch rate increases as the 2015-2017 maturity wave nears.”
Existing investment grade classes during the second quarter had stable rating outlooks and downgrades declined compared to the first quarter, a trend Fitch managing director Mary MacNeill said should continue as fewer loans are transferring to special servicing and
“Most second-quarter downgrades affected classes already rated speculative grade or distressed,” Fitch said in its report.
