Fitch Expects Further Downgrades of U.S. CMBS

With recent vintage U.S. CMBS deals expected to substantially underperform older transactions, significant rating actions across the capital structure are likely, according to Fitch Ratings in its refined surveillance methodology for 2006-2008 vintage CMBS.

“Super senior ‘AAA’ rated classes are expected to keep their top-tier ratings with a Stable Outlook, though the Rating Outlook for mezzanine ‘AAA’ tranches in certain deals will be Negative. Fitch may downgrade these tranches over time should property market conditions continue to decline or if transactions perform substantially worse than expected.”

Fitch is incorporating prospective stresses in forecasting losses, assuming 15% property income declines and 35% peak to trough property value declines.

Continued macroeconomic deterioration will result in further loan performance declines, though we will not see the full effect immediately.- Fitch Managing Director Mary MacNeill.

Fitch placed approximately $18 billion of 2006-2008 vintage U.S. CMBS on Rating Watch Negative in April. Once the Rating Watch is resolved, many of these classes will retain a Negative Rating Outlook due to continued performance deterioration expected for the foreseeable future, Fitch said.

For details, see: Surveillance Methodology for Recent Vintage U.S. CMBS.

Comments

[Mark54:]

CMBS is infinitely more transparent than RMBS... the properties in the CMBS deals report quarterly financials. Proforma underwriting is the curse of recent vintage CMBS. Pre 2006 deals were based on the most part on concrete, proven financials. Commercial real estate will bounce faster than residential due to the fact that it has a natural institutional investor base (deep pockets). Residential is dependent on Doug and Sally Renter willing to buy their first home confident that the market had bottomed.

Jul 08 09:49 PM