Kroll Bond Rating Agency (KBRA) released today its CMBS monthly newsletter, CMBS Trend Watch.

We’re likely to get a clearer idea of how pricing will shape up in the new year as we track the progress of a recently announced conduit, CFCRE 2016-C3. As noted in our 2016 Outlook, KBRA expects spreads to remain wide relative to prior years due to the influence of liquidity concerns and potential rate increases. Despite this, we expect that issuance will rise in 2016 given pending maturities and relatively strong property fundamentals.

December CMBS Issuance came in at $5.5 billion, about half of November’s total of $11.3 billion. The slowdown in issuance was expected as issuers sought to accelerate deal pricing prior to Regulation AB II taking effect on November 23rd, while investors reached the year’s purchase allotment or shied away from portfolio additions due to market volatility, in addition to the holiday season.

The surveillance team reviewed 19 transactions over the course of the month, which resulted in 211 ratings actions, including 207 affirmations, two upgrades, and two withdrawals. In conjunction with the reviews, KBRA identified seven new loans as KBRA Loans of Concern (K-LOCs), which are loans that are either in default or at heightened risk of default in the near term. Of the seven K-LOCs, three (3.1%) were securitized in COMM 2013-CCRE13. In addition to the K-LOCs, we also assigned a KBRA Performance Outlook (KPO) of Outperform to two loans.

As noted in our prior reports, A Closer Look at Credit Bar-Belling Research Report, the headline KLTV figure has become increasingly masked by bar-belling. The average concentration of loans with Investment Grade (IG) characteristics was 5.3% in 2015, up from 3.5% in 2014. This has helped mute the impact of the increasing proportion of high leverage loans; 38% of all loans had a KLTV≥ 110%, which is up significantly from 2014 reported at 25.5%. It is also worth noting that the KBRA IO Index, which provides a measure of a transaction’s exposure to IO loans, rose for the fourth consecutive year to 39.3%; a full 5.7 points above 2014. These two indicators highlight the continued loosening of origination standards in the current credit cycle.

In the Publications Corner section, we also highlight our KBRA 2016 CMBS Outlook.

In our commitment to transparency, we updated our comprehensive set of the statistics for our rated conduits along with this issue of Trend Watch within the KBRA Comparative Analytic Tool (KCAT). The file enables users to compare data points from all KBRA rated conduits.

To view the report, please use the following link: www.krollbondratings.com/show_report/3565

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).