Japanese CMBS loan defaults reaching peak
Fitch says that the number and balance of defaulted loans underlying Japanese CMBS has declined as of end-September. Despite its expectations that the previous upward trend in defaulted loans is reaching a peak, there is a possibility, the agency says, that the total defaulted loan balance may increase again in Q410.
"This is the first time that both the number and balance of defaulted loans have decreased on a quarterly basis, since Q209, when Fitch started publishing its end-of-quarter underlying loan default commentary," says Naoki Saito, Fitch's Japanese structured finance team director. "The declines are a result of a reduction in newly defaulted loans, together with progress in the workout activities of existing defaulted loans."
As of end-September, 41 loans (Y154bn) were in default within the Fitch-rated Japanese CMBS universe. The number and balance of defaulted loans had decreased by 10 and Y46.6bn respectively, compared to end-June 2010. The default rate, as of end-September 2010, declined to 17.8% by loan balance and 29.7% by loan number, from 20.7% and 32.9% respectively at end-June 2010.
In Q310, three loans totalling Y19.1bn defaulted, while four loans totalling Y24.7bn were paid in full without defaulting. Additionally, the workout activity on 13 defaulted loans totalling Y44.1bn was completed.
Q310 saw the number of workouts completed exceeding 10 for the first time within a quarter since Q109. Fitch says it expects workout activity for many remaining defaulted loans to be completed before end-Q410.
A total of Y183.8bn, relating to 12 loans, will mature before end-December 2010. In contrast, the agency notes that a maximum of Y90bn will mature on a quarterly basis during 2011 and that fewer loans will mature in 2012 year-on-year - suggesting that Q410 represents a peak in terms of maturing loan balance. Therefore, taking into account the maturing loan balance in 2011 as well as the expected progress of workouts, Fitch believes that the previous upward trend in defaulted loans is in fact reaching a peak.
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