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More on S&P and Possible CMBS Downgrades

By Anonymous

On Tuesday, S&P issued a request for comments on proposed changes to their CMBS rating methodology. This was the key sentence:

Our preliminary findings indicate that approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded.

After some negative analyst reactions, S&P extended the comment period (ht Jason):

Standard & Poor's Ratings Services today extended the comment period for its proposed changes to its methodology for rating U.S. CMBS conduit/fusion pools to June 9, 2009. The longer consultation period, which many market participants have requested, will allow time to provide further constructive feedback.downgraded.

Citi held a conference call this morning to discuss the proposed S&P changes. One of the key points was that Citi considered the S&P rent assumptions draconian. Basically S&P was going to start with the lower of current or market rents, and then decrease rents a further 6 to 30% depending upon property type.

Actually this seems reasonable - rents are falling for all property types. Of course existing tenants will keep paying their current rent - or will they? From Bloomberg: Starbucks Pushing Landlords for 25% Cut in Cafe Rents

Starbucks Corp., the world?s largest coffee-shop operator, is pushing some U.S. landlords for as much as a 25 percent reduction in lease rates, taking advantage of a declining real estate market to save on rent.

This seems like deja vu with analysts arguing against subprime rating cuts - the duper AAA are bulletproof - only to find the rating agencies were actually behind the curve.

Full post as published by Calculated Risk on May 29, 2009 (boomark / email).