S&P Revamps CMBS Ratings Methodology

June 13, 2012 by · Leave a Comment
Filed under: S&P 

After a series of missteps culminating in major errors last July that pulled a $1.5 billion Goldman Sachs/Citigroup deal off the market and cost Standard & Poor’s most of its market share in the Commercial Mortgage Backed Securities (CMBS) business, the agency announced that it was changing how it rates CMBS.

In the wake of the debacle, S&P fired the head of the unit and overhauled the team doing the analysis.

Essentially, S&P will be changing how it views the loan diversity underlying the CMBS. Under the new criteria, deals with less diversity would have a 20% credit enhancement to protect the highest-rated tranches.

Industry insiders were initially unimpressed with the changes. Reuters reports that Harris Trifon, head of CMBS research at Deutsche Bank, wrote in an email, “At first glance, it seems the magnitude of the changes will disappoint most investors.”

Since the disaster, except for a small piece of a deal in November, S&P has been passed over for every CMBS that has come to market.

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