All nine CMBS classes that Fitch Ratings placed on ‘Rating Watch Negative’ following wildfires that ravaged the oil town of Fort McMurray in Alberta, Canada have been taken off the agency’s watch list.
In May, the ratings agency had raised the alarm on six CMBS transactions — CMLS 2014-1, IMSCI 2012-2, IMSCI 2013-3, IMSCI 2013-4, IMSCI 2014-5, and REAL-T 2014-1— with risky exposure to the Fort McMurray market, after an unseasonably warm winter led to wildfires that forced an evacuation of all residents and destroyed over two thousand local buildings.
As of last week, the agency has removed all nine classes from its ‘Ratings Watch Negative’ list: three classes from IMSCI 2013-4 transaction totaling C$309.9 million (Canadian dollars), two classes from IMSCI 2013-3 totaling C$220.1 million, two classes from IMSCI 2012-2 totaling C$208 million, one class from CMLS 2014-1 totaling C$269.7 million, and one from the IMSCI 2014-5 totaling C$257.4 million, citing the “overall stable performance” of the pools following the fires. One class from REAL-T 2014-1, backed by the Strongco Building in Fort McMurray, was never assigned ‘Ratings Watch Negative.’
Two loans backing Fort McMurray properties – the Lakewood Apartments (IMSCI 2012-2) and Nelson Ridge (IMSCI 2014-5) – were negatively affected by the fire and subsequent evacuation, but that was due to tenancy issues not physical damage. Both loans have “full recourse to the borrower, sponsor and manager” and “potential loan losses may be mitigated by recourse provisions, insurance proceeds and a recovery in the energy markets.”
The agency stated previously that CMBS classes are placed on Rating Watch Negative in instances when “loss expectations exceed Fitch’s conservative estimates.”
The Canadian CMBS market is small ($4.8 billion of issuance at its 2006 peak) and less volatile compared to its counterpart market in the US, said experts on a CREFC Miami conference panel last year.