01/07/2021 | News release | Distributed by Public on 01/07/2021 15:18
With the winter solstice behind us, we officially entered the period of growing daylight hours. While 2020 was a difficult year for all, successful widespread vaccination in 2021 is beaming light at the end of this dark tunnel.
Despite an unexpected breaching of The Capitol in DC yesterday, Congress affirmed Joe Biden's victory as the next President of the United States. In addition, Democrats also turned Georgia blue, resulting in control of the House, Senate, and White House. The markets remained relatively calm and the US stock index futures pointed higher today despite the abhorrent scenes coming out of the nation's capital. The rationale seems to be that the procedural affirmation and senate flip serves to provide further certainty of future economic policy actions.
Investors rushed to price in this outcome with an inflow into renewables and outflow from Tech amongst others.
The focus now seemed to move away from worries of higher corporate taxes to a potentially much larger stimulus package which may provide the much-needed respite to the economy.
Now, let's review what happened in December.
Like others, the commercial real estate (CRE) market is bound to see an impact from the election outcome. A larger stimulus package, eviction moratoriums, the future of 1031s, uncertainty around opportunity zones, and a push towards more environmentally friendly policies continue to be topics of discussion.
Zeroing in on December, the number of employees at U.S. businesses unexpectedly declined for the first time since April. The last month of 2020 saw a decrease of about 123,000 jobs in the private sector. These losses were mainly focused in the leisure, hospitality, and retail sectors, underscoring the impact on these hard-hit asset classes. We hope that an upcoming stimulus package will provide pointed relief to the COVID -battered hotel industry.
On a positive note, US manufacturing activity picked up significantly in December. IHS Markit's manufacturing PMI climbed to 57.1 in December from 56.7 in November. The index finished 2020 at its highest level since September 2014, with December's gain marking the eighth straight month of improvement after plunging to its lowest in more than a decade in April.
Our monthly snapshot here provides an update on the activity in the CMBS, CLO, and CRE markets and the news that made headlines in December 2020.
What Happened in the CMBS Universe?
The Trepp CMBS delinquency rate logged its sixth consecutive monthly decline following two large jumps in the reading in May and June of this year. Hotel loans continued to be the worst-performing segment, with the overall delinquency rate for that property sector climbing for the second straight month.
The percentage of loans with the special servicer dipped to 9.81% in December from 10.16% in November. According to December servicer data, 24.1% of all lodging loans were in special servicing, down from 25.6% in November. In addition, 17.2% of retail loans were with the special servicer, down from 17.5% in November.
Top CMBS Stories
What Happened in the CLO Universe?
Issuance in the CLO market saw an uptick in the US despite the holiday season. A total of 31 deals totaling $12.5 billion were priced last month in the US, up from 22 deals totaling $8.4 billion in November.
On the other hand, Euro-denominated deals saw a decline in issuance to €1.4 billion in December from €2.0 billion the month prior.
Stories last month focused on many companies looking to build up liquidity amid cash crunch and taking steps to stave off bankruptcy while others refinanced their debt obligations or bought back shares.
Top CLO Stories
The Impact of COVID on CLO Deal and Manager Performance - With the CLO new issuance and deal pipeline comeback, coupled with a low-interest rate environment, the cost of CLO liabilities tightened. However, the risk associated with the underlying leveraged loan collateral increased as well. Using TreppCLO, we examine risk, performance, and collateral quality metrics to determine how much increased-risk has permeated CLO deals resulting from the COVID-driven US economic downturn.
United Airlines Pledges Certain Boeing Airplanes; Increases Government Loan - Simple Flying reported that United Airlines is pledging some of its Boeing 777 planes to increase its term loan facility with the Treasury Department by $331 million, upping the balance on the facility from $7.16 billion to $7.49 billion. Of the total available amount, United Airlines has only borrowed $520 million under the loan. All loans borrowed under the term loan facility will be due on September 28th, 2025.
Trepp CRE Research from December 2020
The overall credit performance of CRE loans in bank portfolios continues to show signs of pandemic related stress with increasing delinquency rates and charge-offs and downward migration of risk ratings. While anecdotal feedback from lenders indicates that relief granted through deferrals and forbearance early in the pandemic has kept delinquency rates from spiking further, several market sectors are clearly in distress.
Unsurprisingly, the delinquency rate for loans on hotels more than doubled, jumping from 1.3% in Q2 to 3.2% in Q3. Delinquency rates for loans on retail properties, while down slightly from Q2, are also significantly elevated and currently stand at 1.44%. The decrease in the retail delinquency rate in Q3 was in part driven by many loan charge-offs that effectively reduced the delinquent balance.
Top CRE Stories
What Was Everyone Talking About Last Month?Empty Hotels Get Second Life as Tiny Apartments During Pandemic - 'The share of hotels with securitized mortgages that were delinquent on their loans was 19.66% as of November, up from 1.52% a year earlier, according to Trepp. Even before the pandemic, a surge of hotel construction over the past decade had left some cities with a room glut.' (The Wall Street Journal)Blumberg Joins Rush of Property Firms Raising Funds for Distressed Deals - 'Signs are growing in the current crisis that landlords owning billions of dollars worth of commercial property are having trouble paying their debts. In November, 8.2% of loans that were converted into CMBS were 30 days or more delinquent, compared with 2.3% one year earlier, according to Trepp.' (The Wall Street Journal)Commercial Real Estate's Pandemic Pain Is Only Just Beginning - 'The most glaring distress is in the $529 billion market for bonds backed by commercial real estate loans. The delinquency rate last month for commercial mortgage-backed securities (CMBS) was 20% for hotels and 14% for retail, according to Trepp. Those obligations that will become more difficult to repay as they fall further behind.' (Bloomberg)Mall of America is no longer delinquent on $1.4 billion mortgage - 'The loan has been current since December, according to Trepp. Beginning with the December payment, the loan was converted to interest-only through maturity, Trepp said. Mall of America was closed from mid-March through June due to the pandemic. Retail tenant collections at the property fell to a low of 33% in April and May, according to Trepp.' (CNBC)
Bausch Health, a top CLO obligor, accelerates senior loan paydowns - 'According to data research from Trepp, Bausch Health has a $4.5 billion term loan B held in 390 CLO deals or 38% of all U.S. deals in TreppCLO; and a $1.5 billion first incremental term loan held in 285 CLO vehicles, or 28% of deals, as of November.' (Asset Securitization Report)Questions or comments on any of the content featured in our monthly snapshot? Contact us at [email protected] or at 212-754-1010.
Disclaimer: The information provided is based on information generally available to the public from sources believed to be reliable.