Moody's Holds the Line on CMBS Ratings

NEW YORK CITY-Moody’s on Friday reaffirmed its February analysis of CMBS loans, saying that most ratings of 2006-2008 conduit/fusion and large-loan CMBS deals will remain broadly stable. However, the ratings agency added the caveat that the assumptions for the ratings hold up “as long as conditions in the commercial real estate market and the general economy do not significantly worsen.”

In that February ratings action, Moody’s downgraded senior investment grade bonds, including junior AAA-rated classes, four to five notches, compared to five or six notches for low investment-grade and speculative-grade bonds. Mezzanine and “super duper” AAA CMBS were left untouched in February, although Moody’s on Friday warned that mezz AAA classes, “while stable for now, are very sensitive to further increases in expected loss.”

Since February, “property prices have continued their march downward,” according to Friday’s report. As GlobeSt.com reported earlier his month, the Moody’s/REAL National All Property Type Aggregate Index for March, released in late May, showed a year-over-year decline of 20.8% from March 2008. In the report released on Friday, Moody’s predicts a peak-to-trough price decline of more than 30%, along with capitalization rates trending higher for the next several quarters.