DBRS Publishes Methodology for Rating North American CRE Non-Performing Loan Liquidating Trusts

DBRS has today released its methodology for rating North American commercial real estate (CRE) non-performing loan (NPL) liquidating trusts (LTs). “The credit crisis of 2007 brought fundamental changes to the commercial mortgage sector that will have a lasting effect on CRE,” says David Nabwangu, Senior Vice President. “As the market struggles to adapt to a new environment, investors, lenders and special servicers hold an increasing number of delinquent loans and defaulted loans.”

With an imperative need for liquidity, one option available for lenders to finance their portfolios of NPLs is to issue notes backed by non-performing mortgage assets. Such a structure is often called a LT. LT noteholders are dependent primarily on proceeds from the liquidation of mortgaged properties as opposed to traditional cash securitizations where cash flows from the receipt of monthly borrower remittances.

“This methodology comes in response to many inquiries received by DBRS about the rating process for NPL LTs,” adds Mr. Nabwangu. “DBRS expects commercial mortgage LT issuance within the next few years to be a viable option to help clear the mounting volume of CRE NPLs.”

The methodology covers all aspects of the DBRS approach to analyzing and rating CRE NPL LTs, including pre-qualifications, model overview and surveillance.

The methodology providing DBRS's processes and criteria is available by contacting us at info@dbrs.com.