Kroll Bond Rating Agency (KBRA) attended CREFC's second annual CRE CLO Conference at the New York Hilton Midtown Hotel on October 10, 2019. The conference was a full day dedicated to the commercial real estate (CRE) collateralized loan obligations (CLO) market, with over 300 registered participants. The program included six panels, a luncheon speaker, and a presentation on the state of the market.
Key takeaways and topics that consistently reemerged during the conference include:
Following three years of substantial growth, the majority of participants predicted the industry will continue to grow in 2020, albeit more modestly.
The quality of reporting post-issuance came up in almost every panel. Participants agreed that standardization and transparency are needed. CREFC currently has a working group focused on this initiative.
Tiering of CRE CLO managers was another topic brought up throughout the conference. Overall, most attendees agreed that current pricing does not reflect tiering or at least not as much as there should be. However, some of the investor participants noted that they effectively tier managers by choosing whether to buy an issuer's transaction.
Managers continue to seek additional flexibility in their CRE CLOs with an eye toward being able to treat well-performing loans as if they were on their balance sheet. Several recent deals allow for good news modifications, which allow changes such as loan coupon reductions and maturity date extensions subject to specific criteria. These modifications allow the loan to be kept in the pool for a longer period of time.
Several investors noted concern surrounding a drop in credit enhancement this year.
To see the full recap, click here. For more specific panel coverage, check out KBRA's live tweets from the conference.
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.