NEW YORK CITY—Early refinancing is a trend in CMBS 2.0, says Fitch Ratings, which expects the trend to continue as interest rates remain low and property fundamentals improve. Accordingly, borrowers increasingly have turned to defeasance and prepayments on the post-2008 generation of securitized loans.

By securitized balance, $9.3 billion in CMBS 2.0 loans have refinanced since they were issued, consisting of $7.2 billion in prepayments, $2.0 billion in defeasance and $42 million in payoffs at maturity. This represents 5% of the original $192 billion in the Fitch-rated CMBS 2.0 universe, excluding non-performing loan pools and restructured or Re REMIC deals.

Overall, says Fitch, loan performance continues to improve or remain stable. As a result, the costs of defeasance or prepayment are often offset by value growth.

Loan defeasance is on the rise overall, with $5.3 billion of Fitch-rated loans defeased during the fourth quarter of 2014 alone. Of this, $791.4 million was from 2.0 transactions.

In total, 85 loans or approximately $2.0 billion of 2.0 issuance has defeased comprising 1% of the 2.0 universe. Q3's tally was larger than Q4's at $905.5 million; however, the total for both quarters was nearly 10 times as large as the $186 million defeased during the first six months of last year.

By vintage, the majority of Fitch-rated loans defeased last year, $1.1 billion, originated during 2011, followed by 2012 with $259.7 million and 2010 at $200.8 million. Defeasance from 2009 vintage-CMBS was from one transaction, Bank of America Large Loan Trust 2009-FDG ($460 million).

Of the 160 2.0 loans that have prepaid, representing 3.7% of the Fitch CMBS 2.0 universe, 84 loans totaling $3.9 billion prepaid during the open period; 44 loans totaling $3.1 billion prepaid with yield maintenance; and 28 loans totaling $131.2 million with a prepayment premium. In addition to the prepayments, 14 loans totaling $75.6 million paid after a default or modification. Seven loans totaling $42.1 million paid off at maturity, $26 million of which was one large floating rate loan, says Fitch, citing data from Trepp through year's end.

Not surprisingly, Fitch says, large loan and single-borrower transactions had much higher rates of prepays and payoffs, at 53.1% and 21%, respectively. Such loans are often shorter-term, floating rate, and/or on higher profile properties with sophisticated borrowers who refinance more often.

The highest amount of loan prepayments occurred in Q2 and Q3 of both 2013 and last year, according to Fitch. Q3 of '14 saw $2.1 billion in prepayments, compared to $1.5 billion the year prior. There were $1.2 billion of Q2 '14 prepayments, versus $772.5 million in Q2 '13.

As with defeased loans, circa-'11 loans have seen the highest volume of payoffs or prepayments with $3.3 billion followed by '12 with $2.1 billion and '13 with $1.2 billion. “Although defeasance and paydowns increase credit enhancement, potential upgrades in 2.0 CMBS may be limited as many of these transactions have become more concentrated,” according to Fitch.

Instant Insights /

More CMBS 2.0 Borrowers Refi Early

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