S&P looking closer at credit risk of CMBS tenants
Standard & Poor's is using a new tool to detect the financial risks posed by tenants who lease space in properties that serve as collateral in commercial mortgage-backed securities. To calculate the risks posed by underlying tenants, S&P created the CMBS Tenant Index that will highlight the overall credit strength of a property's underlying tenants, who are the main source of cash flow and without their rents, the financial health of an entire property is at-risk. "While tenant exposure analysis is typically a focus in single-tenant loans, it's also relevant when a loan is secured by a property with an extensive, diversified roster of occupants," said S&P research analyst James Manzi. "This is especially the case when specific tenants 'anchor' the property, which is common in large retail properties. The loss of an anchor can significantly affect foot traffic to a mall, and thus significantly affect cash flow to the property." The CTI Index measures the underlying risks by combining the 70 largest tenant exposures from the public conduit universe portfolio of analytics firm Trepp with long-term corporate credit ratings. The focus on underlying risk has become more prevalent in the wake of the housing crisis. And the rate of delinquent loans in CMBS rose again in April and remains higher than 9%, as it has for all of 2011, according to Moody's Investors Service. Write to Kerri Panchuk.