Fitch: Fears Over CMBS Risk May be Overstated

Fitch Ratings, like many industry participants, said Friday that it has been concerned that the current liquidity crisis in the capital markets may freeze up CMBS refinancings, essentially dooming those loans with upcoming maturities — and that it stress-tested commercial loans with a maturity date in the near future, as a result.

The results were somewhat surprisingly “comforting,” according to a press statement by the rating agency on Friday. Highlights of the findings under the most stressful scenario:

• 42% of the $91 billion in the transactions tested with upcoming maturities had no rated classes impaired by potential losses. Under this hypothetical stress scenario, 66% of the classes which would be impaired are rated ‘B’ or below, 22% of the classes are rated ‘BB’ and the remaining 12% would be investment grade classes;
• Of the investment grade classes considered impaired, no rating categories above ‘A’ (only 5% of the total) were affected.
• Floating rate deals were more susceptible to investment grade impairment as these transactions generally have no below investment grade classes to absorb losses. Although though 82% by class balance of the impaired floating rate classes were to investment grade classes, no classes rated above ‘A’ (only 17% of the total) were affected.

When Fitch applied a less rigorous stress it characterized as more likely, it said that no investment grade classes were impaired for floating rate deals.

As a result of the stress testing, Fitch said it did not expect to downgrade any of the transactions it tested in the near-term. Although the rating agency said it does have strong concerns about near-term property value declines, it does not anticipate the drastic declines that would generally impair commercial transactions at the investment-grade level.

For more information, visit http://www.fitchratings.com.