Feb. 5 (Bloomberg) -- Moody’s Investors Service is reviewing the ratings of $302.6 billion in commercial mortgage-backed securities as real-estate values drop and property owners fall behind on payments.
The review encompasses 52 percent of outstanding U.S. commercial mortgage-backed debt ranked by Moody’s, the New York- based ratings company said today in a statement. The ratings of so-called senior and mezzanine AAA bonds, the top two classes of CMBS accounting for about 72 percent of the securities being reviewed, probably won’t be affected, Moody’s said.
The U.S. recession is crimping consumer spending and hurting business growth, making it harder for commercial property owners to make their payments. Should Moody’s decide to cut the ratings, investors including banks and insurers may need to sell CMBS holdings to maintain required levels of capital.
“Property values declined sharply in 2008, and we anticipate further declines over the next 12 to 24 months,” Moody’s analyst Nick Levidy said in the statement. “Delinquencies on CMBS loans are also on the rise, and we expect the pace to accelerate as macroeconomic pressures take a toll on property cash flows.”
Moody’s said it may downgrade the lowest levels of the securities by an average of four to five levels. Many of the securities are trading at levels that already suggest their ratings were lowered.
As CR notes:
And so it begins for CMBS. First the reviews, then the downgrades, followed by the bank write-downs, and then more reviews ...
Yep. Been waiting for these more concrete stories about CRE to start popping up. Everyone's been reading about the decreased occupancy, etc, but when Moodys actually starts reviewing the MBS, that's the sign we're well into the CRE implosion, I think.
I've never met a retarded person who wasn't smiling.
but did i read that right? 72% of CMBS securities won't be affected by the imminent downgrades? so 28% will be affected then.
my depth on MBS is minimal at best...i do know that "pools" of mortgages are bunched together and securitized...they're given ratings and traded...those who invest in them (institutional investors) are very sophisticated...those who buy them have teams of analysts who break each pool down and run lots of stress tests on viability....each pool can literally consist of thousands of individual mortgages and each mortgage is analyzed for prepayment risk and default...the complexity of the instruments justified the 'spread' to benchmarks...meaning to say that the relative 'cheapness' these securities traded at relative to US treasury notes were worth extra analysis.
this moody's action has been long overdue...the whole mortgage related market has traded down on a 'guilty by association' basis for over 2 years.
i'll say though that it was street convention that the AAA rated, mezzanine level, unsubordinated tranches were AAA because those bonds were insured...insured by FSA, AMBAC, etc...and to remind everyone about what happened to those insurers...they themselves got downgraded...so if your insurer got downgraded, how 'qualitited' are those securities that were insured by them? not really is the answer.
The reason I ask that question is because the percentage of residential RE backed bonds that were downgraded was a small number. But because the dollar volume of speculation was so high, the percentages cited were misleading. I suspect that's the case with commercial RE as well.
