KBRA Releases Research – Full-Year 2023 CMBS Conduit Subordinate Debt Hits Multiyear Low
8 May 2024 | New York
KBRA releases research on the fall in CMBS subordinate debt.
While CMBS conduits are composed of first-lien loan collateral, they typically have exposure to collateral where subordinate indebtedness held outside the trust is in place or future amounts are permitted. Such indebtedness in KBRA-rated CMBS conduits has been declining since 2020, when it peaked at $8.8 billion. With the expectation that interest rates will stay higher for longer, it appears that lenders became more cautious in full-year (FY) 2023, as the amount of subordinate debt fell below the $1 billion threshold. This was the first FY that this occurred since we began formally tracking these metrics in early 2012. The recent FY low coincides with trends in both in-trust and all-in KBRA loan-to-value (KLTV) metrics, which reached their lowest levels in over a decade. From 2012 through 2023, these KLTVs were 96.3% and 102.4% on average, respectively, with the latter including additional subordinate indebtedness. For year-to-date (YTD) 2024, the figures were even lower, at 86.8% and 88%, respectively.
Key Takeaways
- The number of loans (22) with subordinate debt in 2023 was the lowest for any vintage year.
- Total subordinate debt declined to $847 million in 2023 from $8.8 billion in 2020.
- All-in KLTV has been on a fairly steady decline since 2015, reflecting falling subordinate debt levels.
- In 2023, all-in KLTV fell to 90%, the lowest for any FY vintage.
- Office—which has the highest percentage of subordinate debt by loan count on average since 2012, at 9.3%—was at 0% as of YTD 2024.
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