CMBS Downgrades On The Rise: Fitch

The frequency of U.S. CMBS rating actions - upgrades in particular - may fall in the coming year, according to new report from Fitch Ratings.

“Falling defeasance volume and the large amount in interest-only and partial interest-only loans in recent vintages will limit future upgrades and bring down the upgrade to downgrade ratio,” says Fitch senior director Adam Fox. “Ratings should always reflect the current credit of a transaction, and Fitch’s use of internal screening algorithms as part of its SMARTView process allows for quick action when a rating change is warranted.”

Since launching SMARTView in September 2006, Fitch has designated 605 CMBS transactions ‘Under Analysis’ - roughly 54 transactions per month - resulting in 1,153 upgraded classes compared with 43 downgrades, a 27 to 1 upgrade to downgrade ratio.

While still a commanding ratio, this represents a decline from the 34 to 1 ratio for all of 2006, with the upgrade/downgrade ratio likely to continue declining for the remainder of 2007, adds Fox. As of today, Fitch has roughly 470 U.S. CMBS transactions totaling $486 billion under surveillance.

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