Fitch: Liquidity Pressures Hit CREL CDOs

Liquidity pressures are limiting the ability of asset managers to remove underperforming loans from U.S. commercial real estate loan CDOs, according to Fitch Ratings. The rating agency said its delinquency index for CREL collateralized debt obligations increased to 1.46% in July, up from 0.36% in October 2007 when Fitch began tracking the numbers. Karen Trebach, a Fitch senior director, said the CREL CDO index has remained relatively low partly because asset managers had been removing underperforming loans, but that many now face capital constraints that will hamper their ability to keep doing so. "Reduced CDO cushions are becoming more commonplace with the dual pressures of reduced liquidity and increased delinquencies," Ms. Trebach said. "Constrained liquidity may also lead to more managers' modifying and extending loans rather than repurchasing them, which, if not merited, may only serve to delay the possible realization of losses on these loans." Fitch can be found on the Web at http://www.fitchratings.com.