European CMBS Outlook Worsens as Borrowers Fail to Repay Loans

Only five of 35 loans linked to European commercial-mortgage backed securities were repaid when they came due at the end of October, according to a report today by Standard & Poor’s.

The loan maturity “performance in October was more dismal” than anticipated, the ratings company said in its November CMBS bulletin.

“The tally of defaulted loans is set to rise further,” S&P said. “These events are contributing to the rising number of loans going into special servicing, which, in turn, has led to increased costs, and in some cases, interest shortfalls.”

About 60 percent of the 17 billion euros ($23 billion) of European CMBS due to mature by the end of next year could default, S&P said Nov. 1. In the past 12 months, borrowers have managed to repay only about 4.5 billion of the 13 billion euros of loans that were scheduled to mature between November 2010 and October 2011, the New-York based unit of McGraw-Hill Cos. said.

Almost 150 loans linked to CMBS are now scheduled to mature in 2012, representing 14.8 billion euros of loans by balance, S&P said.

To contact the reporter on this story: Neil Callanan in London at ncallanan@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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