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S&P on CMBS: Potential Downgrades from AAA to A

By Anonymous

S&P put out a report this afternoon: The Potential Rating Impact Of Proposed Methodology Changes On U.S. CMBS. A few excerpts:

In our preliminary review of outstanding transactions, there were a number of recent-vintage transactions that required 'AAA' credit enhancement of more than 30% using our 'AAA' stress, which implies that super-senior classes within those deals would be downgraded.
...

Transactions from the 2007 vintage are likely to experience the greatest impact if the criteria are adopted, as most tranches currently rated 'AAA' with 30% credit enhancement ("super dupers") would likely be downgraded. The downgraded classes would have a weighted average rating (WAR) of 'A'.
...

Shorter weighted-average life 'AAA' classes benefit from structural protection and would likely perform better than longer-weighted average life 'AAA' classes. Of the A-2 (five-year) classes from 2005-2007, 25% of the 2005 deals (12 classes, 12 transactions), 10% of the 2006 deals (five classes, four transactions), and 25% of the 2007 deals (15 classes, 13 transactions) are potentially at risk for downgrade based on our analysis.
...
Ten-year super-duper (30% credit-enhanced) classes have a higher potential for downgrades than the shorter weighted-average life classes: 50% (2005), 85% (2006), and 95% (2007) of the super-duper 'AAA' tranches would likely be at risk.

Note: This appears to be a change from the request for comments issued May 26th, but it really isn't. In the request for comment S&P stated: ?approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded.? However that included both shorter and longer weighted-average life classes. It is the Ten-year super dupers that will be hit the hardest.

Full post as published by Calculated Risk on June 04, 2009 (boomark / email).