The Back Alley Archives

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.

And so it begins for CMBS. First the reviews, then the downgrades, followed by the bank write-downs, and then more reviews ...

but did i read that right? 72% of CMBS securities won't be affected by the imminent downgrades? so 28% will be affected then.