Moody’s Expects Late Vintage CMBS Ratings to Stay Stable
Moody’s expects most ratings of late vintage commercial mortgage-backed securities deals to remain broadly stable. In a new paper, updating Moody’s February ratings review of these outstanding securitizations, Moody’s notes that the underlying assumptions for those ratings remain on track, as long as conditions in the commercial real estate market and the general economy do not significantly worsen.
While the scope and pace of developments in commercial real estate certainly warrant continued vigilance, and further rating actions cannot be ruled out, we expect the ratings of the securitizations that were part of the February sweep to hold up for the most part over the near term,” – Nick Levidy, Moody’s managing director.
Super-duper Aaa-rated classes for late vintage deals, with 30% credit enhancement and a six times multiple of current expected loss, are unlikely to experience downgrades, according to the report. Current mezzanine Aaa classes, with credit support at 20% on average, while stable for now, are very sensitive to further increases in expected loss.
The current projected expected loss estimate of 5% on average for late vintage CMBS pools results in Aaa credit support in the high teens when stressed to an appropriate multiple.
In February 2009 Moody’s undertook an analysis of conduit/fusion transactions issued from 2006 through 2008, and all large loan deals, regardless of vintage. As a result, Moody’s downgraded senior investment grade bonds, including the junior Aaa-rated classes, an average of four to five notches on average. Low investment grade and speculative grade bonds were downgraded from five to six notches on average.
No mezzanine or super-duper Aaa-rated CMBS securities were downgraded in connection with the sweep. Moody’s has now updated that earlier analysis in order to assess the impact of recent performance trends.
Moody’s report notes that specific transactions reviewed as part of the sweep are not necessarily immune to further downgrades in the near and intermediate terms. “In fact, a small number of transactions, particularly those with lower diversity, are likely to come under additional ratings pressure if the downturn deepens appreciably or if, for example, the unexpected loss of major tenants causes a default on one or more of the larger loans in a pool. If individual pool performance deviates substantially from our expected path, even some mezzanine Aaa-rated classes may be subject to downgrade risk.”
The new report can be found on here.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
