News Column

Fitch Virtual Investor Meeting: U.S. CMBS Climate Now Akin to 2006

June 24, 2014



NEW YORK--(BUSINESS WIRE)-- The U.S. CMBS underwriting environment is now reminiscent of the one seen eight years ago, though with some notable caveats, according to Fitch Ratings in its latest U.S. structured finance virtual investor video series that was launched today.

Most investors agree that underwriting standards and credit quality on new CMBS deals resembles those seen back in 2006. One main difference between 2014 deals and those of eight years ago, according to U.S. CMBS group head Huxley Somerville, is that credit enhancement is increasing on new deals as underwriting quality falls. In fact, average credit protection on 'AAA' CMBS of today now nears 23%, compared to 20.75% in 2012. Another contrast, according to Somerville, is that we are nowhere near the top of the economic cycle compared to 2006, which makes term risk on newly originated loans fairly muted.

That said, CMBS underwriting has declined substantially over the last three years. Also of concern is the large increase in IO loans. From 33% in 2012 to 55% as of first quarter-2014, Somerville said that IO does not need to be so prevalent. Not all news is discouraging, however. There are still several originators who are showing more prudence than others when structuring new CMBS transactions, as Fitch cited in its' recent 'Originators Mater' report.

As part of Fitch's new investor video series, the rating agency's U.S. structured finance group heads discuss hot topics on investors' minds and how Fitch is addressing these topics, be it on specific deals, regulatory issues or even ways to enhance Fitch's research products. The video series will be available on Fitch's 'Multimedia' page at 'www.fitchratings.com'. Questions can be emailed to 'sfinvestor@fitchratings.com'

Additional information is available on the following page:

'http://info.fitchratings.com/VirtualInvestorMeetings/'

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Huxley Somerville

Head of U.S. CMBS

+1-212-908-0381

Fitch Ratings Inc., 33 Whitehall Street, New York, NY, 10004

or

Kevin Duignan

Global Head of Securitization and Covered Bonds

+1-212-908-0630

or

Zanda Lynn

Managing Director, Business and Relationship Management

+1-212-908-0601

or

Media Relations

Sandro Scenga, New York, +1-212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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