KBRA releases research that discusses the private label commercial mortgage-backed securities market’s continued reliance on the London Interbank Offered Rate (LIBOR) in 2021, despite the looming cessation of the index. This occurred in a year where floating rate commercial real estate (CRE) securitization issuance reached record levels. However, the market has also generally adopted the alternative rate fallback language recommended by the Alternative Reference Rates Committee (ARRC). The language provides the necessary triggers and steps for the transition to a Secured Overnight Finance Rate (SOFR) or another alternative index rate for floating rate securitizations.

The market also continued to move ahead with the development of the necessary framework and infrastructure to switch from LIBOR to SOFR, including the development of a Term SOFR index rate. KBRA expects that most floating rate CRE securities issued in 2022 will be based on the Term SOFR rate. However, many legacy floating rate LIBOR deals, including the 2021 transactions, may not switch until much closer to LIBOR’s planned cessation date of June 30, 2023.

This KBRA report provides an update to earlier research in which we discuss what has transpired with LIBOR and SOFR last year, as well as provides an assessment on the state of the CRE securitization market, and recap risks and exposures across the different CRE securitizations segments.

Click here to view the report.

Related Publications

• Four CRE CLOs Converting to Term SOFR From Compounded SOFR
• First CRE Securitizations Converting to SOFR
• 2022 Sector Outlook–CMBS: Full Steam Ahead
• CMBS Loan Performance Trends: December 2021
• CMBS Trend Watch: December 2021

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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