Standard & Poor’s isn’t exactly reeling from the SEC measure banning it from rating conduit fusion CMBS — in fact, the rating agency more than doubled its business in the first quarter.
S&P reportedly rated $8.7bn worth of transactions, up from $3.9bn a year earlier and $7bn in the third quarter.
In an agreement struck in January with the U.S. Securities and Exchange Commission, the rating agency was banned from rating conduit fusion CMBS for one year and ordered to pay $77m in fines after allegedly “lying to investors.”
Conduit fusion deals typically involve more than 20 loans. But S&P was not banned from rating the segments of the CMBS market it has traditionally dominated, including single-borrower deals. That led some to believe that the SEC held back to avoid deeper impacts.
“They want to clock them but not do anything that will impact ongoing ratings too heavily,” one source told Real Estate Capital at the time.
But few anticipated a profound business boost, which was due mainly to an uptick in single-borrower deals in the first quarter, Bloomberg noted. Though S&P rated 70 percent of those deals, compared with 81 percent one year earlier, business soared because total deal volume doubled in the first quarter.
After S&P pulled its ratings on six deals worth $1.5bn in early 2011, claiming there was a problem with its models, the SEC and two attorney generals (NY, MA) launched an investigation showing that the ratings agency had rated less conservatively than claimed.
S&P also misled clients and investors when it sought to re-enter the CMBS market in mid-2012, publishing “a false and misleading study” claiming that its new credit enhancement could withstand “Great Depression-era” stress levels, among other SEC findings.