KBRA Releases Research – Single-Borrower CMBS Default and Loss Study: Despite Pandemic-Driven Default Highs, Losses Remain Low

NEW YORK–(BUSINESS WIRE)–#KBRA–KBRA releases its single-borrower (SB) CMBS default and loss study update, which reviews the performance of 644 SB deals issued from August 1993 to September 2021—the SB study population—that had at least one year of loan seasoning, with performance tracked through September 2022. The pandemic and its lasting impacts pushed the SB cumulative loan default rate to 6.4% (41 loans) as of September 2022, up from 1.4% (six loans) at the time of KBRA’s last SB CMBS default and loss study in 2019.

The study population loans largely had either floating (337, 52.3%) or fixed rate (287, 44.6%) coupons, while a smaller number (20, 3.1%) had both floating and fixed rate components. Lodging (179, 27.8%), office (160, 24.8%), and retail (119, 18.5%) represent the top three property types.

There were 41 defaults identified during the study period, resulting in a 6.4% cumulative default rate. Nearly two-thirds of these (63.4%, 26 loans) defaulted in 2020, many of which occurred in Q2 2020 during the height of pandemic lockdowns and travel restrictions. Nearly one-half of the defaulted loans (20 of the 41) were modified and are currently classified as performing loans by the servicer. More than one-half of these modifications (11 of the 20) were maturity extensions beyond their original final maturity or, in the case of loans with extension options, fully extended maturity date. Less than 25% of the defaulted loans (nine of the 41) have been fully resolved.

With only five losses and a 6.4% default rate, SB transactions have weathered various stressed economic environments reasonably well. However, as over 50% of the study population utilizes floating rate debt, we expect certain loans to come under performance pressure, which could lead to increased defaults. In part, this may be triggered by skyrocketing interest rate cap costs, as caps are generally required when exercising available maturity extensions; however, we also expect increased refinance risk, as borrowers will likely be required to contribute equity to transactions to facilitate take-out financing. Regardless of the interest rate environment, we still expect some rise in defaults owing to the bearish headwinds facing the economy, as well as the relatively higher leverage that characterizes recent vintages.

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KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.


Primary Authors

Amit Pandey, Associate Director, CMBS

+1 (646) 731-1222


Larry Kay, Senior Director, CMBS

+1 (646) 731-2452


Roy Chun, Senior Managing Director, CMBS

+1 646-731-2376


Additional Contacts

Nitin Bhasin, CFA, Senior Managing Director, Co-Head of CMBS

+1 (646) 731-2334


Eric Thompson, Senior Managing Director, Head of Global Structured Finance

+1 (646) 731-2355


Business Development Contact

Michele Patterson, Managing Director

+1 (646) 731-2397


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