KBRA Releases Research – As Freddie Mac K-Series Defeasance Accelerates, Supplemental Debt Slows
NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) releases a new report, As Freddie Mac K-Series Defeasance Accelerates, Supplemental Debt Slows, which discusses the meaningful increase in loan defeasances that we have observed among Freddie Mac K-Series transactions, as well a decline in supplemental debt placements.
The pickup in defeasance volume is not surprising, as the U.S. is well into its longest economic expansion in history, with 121 consecutive months of GDP growth. While the unpaid principal balance rose 86% year-over-year (YoY) to reach an all-time high of $3.86 billion in year-to-date (YTD) April 2019, supplemental debt was down 36% YoY to $254 million. This compares to $2.08 billion and $395 million, respectively. With the expansion long in the tooth, borrowers and/or Freddie Mac may have turned more cautious in taking out some of a property’s equity with supplemental debt. In certain markets, rent growth may have slowed and property operating performance, based on Freddie Mac’s re-underwriting, may not have been supportive of additional debt.
The analysis included rated 5-, 7- and 10-year K-Series deals as of April 2019 which had fixed rate loan collateral. In total, KBRA reviewed 114 transactions with a current unpaid principal balance of $144.3 billion (7,945 loans). Within the deal population, $19.4 billion of mortgage collateral was defeased and $7.04 billion of supplemental debt was placed since February 2011.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider, and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Larry Kay, Senior Director
Giselle Vuong, Senior Analyst
Eric Thompson, Senior Managing Director