Older Vintage CMBS Not Immune To Market Stress

Further deterioration in real estate fundamentals expected over the next 18 to 24 months are likely to cause rating downgrades for seasoned U.S. commercial mortgage-backed securities (CMBS) deals, according to Fitch Ratings in a new report.

Fitch plans to close out 2009 with a review of its rated portfolio of older U.S. CMBS deals (i.e., deals originated in and before 2006). Fitch's analysis will incorporate prospective stresses to the loan's cashflow similarly to the stresses applied when reviewing the more recent vintage CMBS transactions.

‘Large loan floaters, pre-2000 vintage CMBS and deals originated in the latter half of 2005 will be most susceptible to downgrades,’ says Fitch's managing director, Mary MacNeill. "It should be noted that the magnitude of these expected negative rating actions will not be as significant as that of recent actions already taken on later vintages."

With recent vintage CMBS encompassing nearly half of the Fitch-rated universe and among the weaker-performing deals, Fitch expects approximately 90% of its entire rated CMBS portfolio to retain investment grade ratings once all reviews are complete.

While Fitch expects these older vintage transactions to perform better from a ratings standpoint, "it is now evident that all CMBS vintages are susceptible to the severe economic conditions of the past two years," MacNeill adds.

Fitch's third-quarter review of 2006-2008 CMBS deals, which concluded earlier this month, resulted in rating affirmations on 80% of the tranches by balance (totaling $186.1 billion) and downgrades for the remaining 20% ($44.3 billion). Fitch expects few additional near-term negative rating actions among these 78 deals.

The sector is facing a steady increase in CMBS delinquencies, which Fitch anticipates will hit 6% by first quarter of next year and double digits by 2012.

SOURCE: Fitch Ratings


Please enter your comment!
Please enter your name here