CRE CLO market faces volatility as delinquencies rise and issuers resort to maneuvers.

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Key points:

  • Commercial Real Estate Collateralized Loan Obligations (CRE CLO) issuance surged from $19 billion in 2019 to $45 billion in 2021.
  • 72% of collateral is linked to multifamily properties.
  • Delinquent loans or those in special servicing rose to 8.6% in January but decreased to 7.4% in February.
  • Issuers repurchase delinquent loans using cash reserves to avoid breaching asset coverage tests, amounting to $1.3 billion in 2023.
  • Issuers employ strategies like loan extensions and modifications to maintain borrower compliance.
  • 15% of Ready Caps loans have been transferred to special servicers.
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Potential implication:

  • Rising delinquencies and issuers’ maneuvers to manage them suggest underlying instability in the CRE CLO market.

Source:

https://www.bloomberg.com/news/articles/2024-03-19/real-estate-pain-is-showing-up-in-collateralized-loan-obligations-clos?leadSource=reddit_wall

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