Rebel Traders – Analysis Without The Hype

Another one bites the dust… Capmark Investments LP files Chapter 11 bankruptcy, and updated commercial loan delinquency projections…

NEW YORK, Jan 15 (Reuters) – Capmark Investments LP, which said it manages more than $1.7 billion of equity real estate and mortgage-related investments, filed for bankruptcy protection on Friday, less than three months after its parent, Capmark Financial Group [CPFNG.UL], made its own filing.

The partnership once known as GMAC Institutional Advisors has more than $1 billion of assets and liabilities, according to its Chapter 11 petition filed with the U.S. bankruptcy court in Wilmington, Delaware.

Capmark Investments said it hired Lazard Freres & Co as its investment banker and financial adviser for the bankruptcy process. A spokesman for the partnership declined to comment.

Capmark Financial, a commercial real estate company, had sought protection from creditors on Oct. 25, wiping out the investments of several private equity firms including Kohlberg Kravis Roberts & Co [KKR.UL].

The company cited deteriorated financial and real estate market conditions and a lack of available capital for its filing, in which it reported $20.1 billion of assets and $21 billion of liabilities.[…] Source: Reuters

And while we are on the topic of mortgage related investments, take a look at the latest projections on commercial loan delinquencies issued today:

Moody’s: US CMBS loan delinquencies rise to 4.9%; 8%-9% rate expected by end of 2010. 

    Delinquencies on US CMBS loans in conduit/fusion deals ended 2009 at 4.9%, as measured by the Moody’s Delinquency Tracker (DQT). They began 2009 at 0.95% and therefore have increased five-fold during the year.

   Moody’s expects loan performance to deteriorate further in 2010 and projects that the DQT will reach 8%-9% by the end of the year. 

The Bloomberg article says it all -

Dec. 21 (Bloomberg) — Commercial property values in the U.S. declined in October to the lowest level in more than seven years as unemployment reduced demand for apartments, offices and retail space. [...]

[...]Values are dropping as U.S. unemployment climbs and consumers cut spending. Office vacancies may approach 20 percent next year as employers hold off hiring, commercial property brokers Jones Lang LaSalle Inc. and Grubb & Ellis Co. said last month. [...]

[...]An estimated $1.4 trillion of commercial real estate debt is scheduled to mature over the next five years and Foresight estimates that 53 percent of it is “underwater,” meaning the value of the property is less than the mortgage, Anderson said.

[...]The delinquency rate for U.S. commercial mortgage-backed securities rose to 4.47 percent as of the end of November, Moody’s Investors Service said on Dec. 10. That’s almost six times the year-ago rate of 0.75 percent. (emphasis added)

Delinquencies for commercial real estate mortgages held by banks may rise to 5.6 percent in the fourth quarter and reach as much as 8 percent next year, Anderson said. [...]

This evening Moody’s has placed under review for downgrade hybrid and subordinated debt totaling $450 Billion of securities.

Moody’’s Investors Service has placed under review for possible downgrade the ratings of 775 hybrid and subordinated debt securities issued by 170 bank families in 36 countries following a change to its rating methodology for these instruments.

The reviews follow the rating agency’’s announcement that it has changed the way in which it rates these securities to take into account the fact that some recent government interventions in troubled banks have not helped, and have even been to the detriment of, the holders of these types of securities. For example, in some cases, support packages have been contingent upon a bank’’s suspension of coupon payments on these instruments as a means to preserve capital.

I say again.. We keep being told that everything is getting better. This only shows more (not less) deterioration is taking place within the financial markets.

S&P report warns CMBS defaults on the rise, peak default period ahead according to a report issued by Standard and Poors on August 18, 2009 –

No that is not a misprint. Delinquencies on commercial mortgage backed securities (CMBS) is now at a 12 month high of almost $29 Billion per data released by Realpoint Research.

Realpoint reports that over the past year the delinquencies has risen from $4 Billion to the now record amount of $29 Billion.

Late loans across the country are up an “astounding” 585 percent from a year ago when just $4 billion were delinquent, reported the Horsham, Pa.-based research firm. The low point for delinquency was March 2007 when $2 billion was delinquent.

Realpoint reported that the total unpaid balance for all commercial backed mortgage securities pools under review by the firm was $817 billion in June [...]

[...]The three states with the most delinquent loans accounted for more than a quarter of the unpaid balances. Realpoint said that California with almost $3 billion in delinquent loans, or 10 percent of the exposure, and Texas with $2.5 billion, or 9 percent of all delinquencies, “remain a major concern.” In California, the delinquent properties are spread across the state, compared to Texas where the problems are located mainly in Dallas-Fort Worth.

The other states among the top 10 are Michigan, Arizona, New York, Georgia, Hawaii, Nevada and Illinois. If delinquencies are counted by only metro areas, Phoenix has the highest at $1 billion and San Francisco has the lowest at $605 million.[...]

I fully expect this situation to deteriorate further as the impact of the economy, credit conditions, and growing unemployment continues to spread throughout the nation.

Moody’s concluded its review of 339 tranches of commercial mortgage backed securities (CMBS) with an original balance of 1.44 trillion yen ($15 Billion US) involving 57 Japanese CMBS deals.

Green shoots?

Yet again we find residential mortgage-backed securities (RMBS being downgraded due to increased loss potential. Tonight after the market closed Standard and Poors downgraded 250 classes of RMBS transactions which are backed by ALT-A and prime jumbo mortgages.

The ratings downgrades impact transactions of loan collateral issued in 2005, 2006, and 2007.

With the announcement from Standard & Poors earlier this week that triple A rated commercial mortgage backed securities (CMBS) may be downgraded due to deteriorating underlying conditions has sent risk premiums up significantly in the past several days.

Fears among credit investors have risen that threatened ratings downgrades of commercial property debt might thwart US government efforts to revive the markets that help fund office blocks, shopping centres and other commercial real estate.

Standard & Poor’s warned this week that it was likely to downgrade tens of billions of dollars in triple A securities backed by recent real estate loans – with 90 per cent of the securities backed by 2007 mortgages likely to face rating cuts.

The move took the market by surprise and triggered a sharp fall in the value of triple A rated commercial mortgage-backed securities. The ratings are important because the Federal Reserve said last week that its $1,000bn term asset-backed securities loan facility (TALF) could only be used in the CMBS market for securities that are rated triple A.

Investors now fear that triple A rated securities backed by commercial mortgages could end up seeing a cascade of rating downgrades, in an echo of the experience of securities backed by subprime residential mortgages.

According to Barclays Capital, the risk premiums, or spreads, on recent senior triple A rated CMBS have risen by more than 115 basis points this week. On Thursday they were trading at 835 basis points over benchmark rates, up from 720bp last week. A year ago, the spreads were 145bp.[...] Source: FT

Well ‘Timmy’, what ya going to do now?

This information straight from the newswires…

——-

Moodys downgraded fifteen classes of Credit Suisse Commercial Mortgage Trust
Commercial Mortgage Pass-Through Certificates, Series 2006-C5 due to
higher expected losses for the pool resulting from increased leverage,
reduced debt service coverage, and anticipated losses from loans in
special servicing (impacts $3.5B)

- Moodys downgraded 15 Classes of J.P. Morgan Chase Commercial Mortgage Securities
Corp. 2007-CIBC19 Commercial Mortgage Pass-Through Certificates, Series
2007-CIBC19 due to higher expected losses for the pool resulting from
increased leverage, reduced debt service coverage and anticipated losses
from loans in special servicing. (impacts $3.3B)

- Moodys downgraded 10 classes of J.P. Morgan Chase Commercial Mortgage Securities
Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-CIBC20
due to higher expected losses for the pool resulting from increased
leverage, reduced debt service coverage and anticipated losses from loans
in special servicing (impacts $2.4B)

(read more…)