June 2, 2009
There’s a Fortune article featured today discussing Standard and Poor’s (S&P) decision to review it’s ratings on CMBS debt.
The flap started last Tuesday, when S&P said it was considering changes in how it rates CMBS. The New York-based unit of McGraw-Hill (MHP: N/A N/A) warned that the changes could result in downgrades of a large number of recent-vintage issues — including 90% of the most-senior notes issued in 2007, the peak year for commercial mortgage securities issuance.
S&P, Moody’s, and Fitch were all part of the problem that led us down the road we’re on. Slapping AAA ratings on things which should have been far from AAA led to the mistrust that is roiling the markets today. Now, many are concerned that the pendulum has swung too far in the other direction.
The problem is that S&P is injecting further uncertainty into the market when it prematurely “notifies” the market what it is considering doing. It raises concern and doubt, and thereby delays the very much needed washout and recovery of the CMBS market. Investors are going to continue to sit on the sidelines so long as the risk of a downgrade looms, since the underlying price of the securities are directly rated to the rating.
At this point, I think S&P just needs to make the cuts and get it over with.
The other issue of course is the government’s efforts to get the market liquid again. If the agencies cuts the ratings, many of these assets might no longer be eligible for TALF. Some are complaining about this, but to me this is of less concern to since taxpayers are helping foot the bill, and it is better we are not sold a bill of goods for a second time.
Read the full article here.
- Flood of CMBS Rating Cuts Coming
- CMBS Ratings Being Reviewed – It’s a Slippery Slope
- TALF Eligible CMBS Could Shrink Dramatically
- Bill Gross Says U.S. Understates Inflation
- DDR Issue Signals Slow Return of CMBS Market