![]() After adjusting for enforcement costs, we estimate expected losses from 2018-21 vintage CRE loans at 2.2%. After assuming defaults for any vintage segment with an LTV at refi of above 75% we estimate that 5.8% of the original 2018-2021 loan origination will default at maturity.France is well above our six country average while Italy and the UK post below average relative DFGs. There are some unexpected differences between countries. For the first time we report our DFG as a % of loan amounts originated as it stands at 21%.This should be bridged by a combination of new equity top-ups, senior loan extensions & restructurings and junior debt insertions. Our latest expanded and updated DFG analysis implies a cumulative €93bn DFG for the 2023-26 period across six countries.This is defined as the gap to be bridged between the original debt amount due at loan maturity and new debt available to repay for each loan vintage per sector. The extent to which refinancing may pose challenges is estimated by our debt funding gap (DFG).Lower refinancing LTVs together with the already accumulated capital value declines for some of the underlying collateral amplified by the higher interest rates might trigger significant refinancing problems for loans maturing in 2023-26.Regardless, we still expect to see LTVs stabilise at 50% by the end of 2023. The improvement in the latest CREFC financial covenant sentiment survey has not yet translated in a reversal of the downward trend in actual loan LTVs.Signs of stabilisation in borrowing costs are further confirmed by Green Street data on REITs’ unsecured bond yields as well as our in-house market level all-in interest costs after posting more rapid increases over the previous five quarters.Q2 2023 Euro and Sterling all-in borrowing costs have started to stabilise as 5-year swap rates paused after multiple ECB and BoE rate hikes have started to bring inflation down. ![]()
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