"Refinancing to third parties remains difficult with nearly 90%of all new delinquencies this month considered matured balloonloans," according to a release. Overall, 67% of the CREL DIconsists of this type of delinquency, the release states. While 74%of matured balloon loans continue to make monthly payments,approximately 26%--or 18% of the CREL DI--are considerednon-performing with inadequate cash flow to meet debt serviceobligations, according to the release. In these instances, sponsorshave either refused, or are unable, to infuse additional equityinto the projects.

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Asset managers continue to report loan extensions, according toFitch. In line with last month's total, asset managers reported 35new loan extensions in October, or 3% by number of loans in theCREL CDO universe.

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"Borrowers continue to be challenged to meet all extensionrequirements by loan maturity," says Karen Trebach, a seniordirector with Fitch, in the release. "The increase in maturedballoons this month reflects that the extension process is takinglonger both to negotiate and document." Three loans, representing25 basis points, fell out of the CREL DI as the extensions weresuccessfully executed prior to this month's reporting cutoffdate.

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In order to manage the credit quality of their pools, assetmanagers are continuing to repurchase assets out at par, accordingto Fitch. In October, three mezzanine loans representing four bpswere repurchased; this rate compares to an average of 14 bps ofmonthly repurchases over the past year, the release states.

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The release notes that asset managers have also traded somedelinquent loans out of CDOs at a loss, including a foreclosed loanand a 90-plus days delinquent loan, both of which appeared in lastmonth's CREL DI. The foreclosed loan was traded out at 84.7% of theloan amount, while the 90-plus days delinquent loan was traded outat a complete loss.

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In addition, the release notes that asset managers have soldsome CDO assets to third parties at below par, "thereby removingassets that were not yet deemed impaired by the trustee, andrealizing losses. To date, however, the impact of the tradinglosses on the credit enhancement has been negligible."

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The CREL DI includes loans that are delinquent for 60 days orlonger, matured balloon loans and the current month's repurchasedassets. Fitch currently rates 35 CREL CDOs encompassingapproximately 1,100 loans and 350 rated securities/assets with abalance of $23.8 billion.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.