Defaults hit German SME CLOs, says Fitch

Fitch Ratings says that defaults and delinquencies in some German balance sheet CLOs have hit all time highs. In one deal originated by IKB, Promise I Mobility 2005-1, defaults have doubled in the first half of this year to 1.6%, while in several other deals the rate is above 1%.

German synthetic CLOs backed by loans to small and mid-size companies have been highly stable historically, Fitch notes. Most of these deals were issued under the Promise programme in which German development bank KfW guaranteed loans originated by other German banks and then transferred the risk to capital market investors in the form of credit-linked notes.

Fitch says it expects defaults to peak in 2010 as companies continue to struggle to deal with the aftermath of the recession.