S&P wobble knocks US CMBS issues

Confidence in the US CMBS market has deteriorated as a result of a rating debacle. Citigroup and Goldman Sachs, as well as Freddie Mac, were forced to cancel their CMBS deals worth a combined $2.7bn after Standard & Poor’s pulled its preliminary ratings on the transactions – used to sell the bonds to investors.

S&P said it had discovered potentially conflicting methods for calculating debt service coverage ratios – an issue for the next wave of CMBS 2.0 securitisations. John Wilcox, a managing director of real estate finance  in Savills’ New York team, said: “S&P would only really do that if they decided not to be in that business any more, as issuers would be reluctant to use them.”

The rating agency said it is continuing to review its criteria, but does not expect immediate rating changes on outstanding deals and will resume assigning ratings to new CMBS deals. In the past two weeks three large securitisations have been floated, including the Citigroup and Goldman Sachs deal.However, the US CMBS market has slowed significantly.

According to research by Bank of America Merrill Lynch, the much weaker economic data and S&P’s change of methodology have contributed to greater uncertainty for issuers about how their bonds will be priced in the primary market.

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