Commercial mortgage borrowers in Europe are struggling to repay loans as declining asset values make it difficult to get new funding, Standard & Poor’s said.
Only five out of 35 loans maturing last month were repaid in full, S&P said in a report based on data from commercial mortgage-backed securities it rates. That compares with 13 loans extended, eight declared in default and three loans held in a so-called standstill.
“Four of the five loans that repaid had reported loan-to-value ratios below 70 percent,” according to S&P analysts including Judith O’Driscoll and Robert Leach. “Seven of the eight loans that defaulted had an LTV ratio greater than 70%.”
Banks create mortgage-backed securities by pooling loans and selling them to investors as notes. The bonds typically allow lenders to raise capital more cheaply than by issuing unsecured debt.