Bankruptcy Headlines

The U.S. risks a bond market crisis of the kind that engulfed the U.K. 18 months ago, which sent yields soaring and sparked a run on the pound, according to Congress’s independent fiscal watchdog, CNN reported. The stark warning from the Congressional Budget Office (CBO) comes as U.S. government debt continues to break records, fueling concerns about the burden that places on the economy and taking a toll on America’s credit rating. In an interview, CBO director Phillip Swagel said U.S. government debt — which the Treasury Department puts at nearly $35 trillion — is on an “unprecedented” trajectory. “The danger … is what the U.K. faced with former Prime Minister (Liz) Truss, where policymakers tried to take an action, and then there’s a market reaction to that action,” he said, referring to the investor backlash against plans for unfunded tax cuts that forced Truss to resign after just 45 days in office. The U.S. was “not there yet,” Swagel said, but as higher interest rates raise the cost of paying its creditors, on track to reach $1 trillion per year in 2026, bond markets could “snap back.” Britain’s bond market rout in September 2022 offered a cautionary tale of what can go wrong when investors reject a government’s plan to borrow more.

The payoff rate on maturing U.S. office loans packaged in commercial mortgage-backed securities (CMBS) spiked in January and February from last year, according to a new report by Moody's Investors Service, Reuters reported. More than 55% of maturing office loans was paid off in January, while 25% was paid off in February. The combined 48% payoff rate for the two months marks a significant increase from the overall 2023 rate of 35%. The first two months of the year saw $1.15 billion of office debt packaged in CMBS reach their maturity dates. There are $17.4 billion in office loans maturing in the next 12 months. Moody's deemed roughly $13 billion of the amount, or three-quarters, as very difficult to refinance. Concerns swirled last year over the heavy office loan maturity wall in 2024, as persistent inflation and remote working have strained landlords' ability to make loan payments. While the payoff rate increased from last year, the figures should be taken with a grain of salt, Moody's noted. Only 30 such loans have matured since the year's start, while smaller loans amounting to less than $10 million had a higher payoff rate than larger debt loads. Most other property types' payoff rates have continued to fare better than office loans. All industrial real estate loans due by the end of February paid off, followed by 89% of multifamily loans and 61.8% of retail loans. Hotel loans fared the worst, with only 19.5% of loans due at February's end paying off.

 

ABI will present a program April 30-May 2 that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held in Ojai, Calif. Click here to register!