Super Senior CMBS Expected To Hold Onto ‘AAA’ Ratings

rating actions across the capital structure of many recent vintage U.S. CMBS transactions will be substantial, mezzanine and super-senior AAA-rated classes are expected to stay AAA for the foreseeable future, according to Fitch Ratings, which is continuing its review of 2006-2008 fixed-rate conduit and fusion transactions. While rating actions on the most senior tranches are not anticipated, Fitch expects to downgrade approximately 75% to 85% of subordinate AAA (i.e., A-J) classes from these recent vintages as a result of its revised loss forecasts. Downgrades across all classes are expected to average two rating categories. Fitch assumes the following factors in forecasting losses: [list] peak-to-trough value declines of 35%, *immediate and sustained income declines of 15%, and *current loan performance is recognized through detailed review of the 15 largest loans, Fitch Loans of Concern and specially serviced loans.[/list] Assuming no property performance recovery, potential losses average 7.5%, with transactions from the 2007 vintage reaching 13.5% or higher. However, under Fitch's stress analysis, 50% of these losses will not occur until maturity which in many cases is seven to nine years away. Therefore, Fitch believes that it is premature to take rating actions that assume the full maturity loss. "With seven-to-nine years of remaining term, there is significant uncertainty regarding the timing and magnitude of ultimate maturity losses," says Managing Director and U.S. CMBS Group Head Susan Merrick. Fitch says its stress analysis and rating actions will account for immediate and full recognition of potential term losses combined, initially, with 25% of the maturity losses. "In subsequent rating reviews, the proportion of maturity losses considered in the stress analysis and rating actions will increase with the full extent of maturity losses taken into account at least two years prior to a loan's maturity," Merrick adds. SOURCE: Fitch


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