The head of fixed income analytics at Deutsche Bank (DB) released a research note to clients about the recent decision from Standard & Poor's to revamp its commercial mortgage-backed securities ratings criteria.
S&P maintains the credit ratings agency is constantly improving its methodologies, something Deutsche Bank does not deny. However, the latest announced changes inspired the recent Deustsche note from Harris Trifon.
"The catalyst for the change was in all likelihood last summer’s much publicized failure to confirm final ratings on a conduit transaction on the eve of the settlement date," he said in an email speculating on S&P strategy.
"The rating agency’s market share which previously had already fallen well below the pre-crisis levels, flat lined after last summer and has remained there since," Trifon said, adding that the CMBS ratings changes, as expected, are a marked improvement. "After all, a rating agency like any other business will not stay in business very long if it’s primary source of revenue disappears."
Changes to Standard & Poor's approach to rating commercial mortgage-backed securities conduit/fusion transactions led Goldman Sachs (GS) and Citigroup (C) to pull a CMBS deal from the secondary markets, the deal Trifon is likely referencing.
The joint Goldman, Citi deal — GS Mortgage Securities Trust 2011-GC4 — was expected to close and settle in July 2011. Instead, the issuers withdrew the deal from the market.
Among other changes, S&P will differentiate underlying commercial properties based on location, whether they're in the largest, secondary or tertiary markets.
Roughly 15% of the 1,100 tranches and 100 transactions S&P analyzed for the criteria changes will be downgraded. Another 10% will receive upgrades, and three-quarters of the deals will be unaffected.