Fitch Warns on $18.1B in Recent-Vintage CMBS

Fitch Ratings said Wednesday that it had placed 532 classes from 50 fixed-rate CMBS conduit transactions from the 2006 through 2008 vintages on Rating Watch Negative — meaning downgrades are highly likely in the next few weeks for affected deals. The rating agency said a recent review of the expected economic conditions and their effect on CMBS performance led the firm to estimate performance closer to a ‘moderate to severe’ scenario the agency ahd outlined last July, with commercial property values falling as much as 35 percent. “While losses are yet to be realized, Fitch expects losses on these recent vintage transactions to average 4.5-5%, while certain deals, particularly from 2007 which contain large concentrations of loans with pro-forma underwriting could reach as high as 7.5%,” Fitch said in a press statement. “This could impair credit enhancement to some of the ‘AAA’ (AJ) classes which may lead to their downgrade.” A sharp decline in economic conditions and the lack of available real estate financing have begun to impact commercial property and CMBS loan performance, Fitch noted — echoing comments earlier in the week from Standard & Poor’s Rating Services, which said Tuesday that it, too, was likely to begin downgrading CMBS credits. CMBS loan defaults increased approximately 95 basis points over the last year to 1.28 percent, according to Fitch; the agency said it expects defaults to reach 3.5 to 4 percent by the end of this year. The $18.1 billion affected by the ratings watch Wednesday adds to earlier collateral that had been placed on negative watch, bringing the total U.S. CMBS fixed rate deals on Negative Watch to $24.2 billion of the $272.1 billion outstanding from these vintages, the agency said. Fitch also said that it expects on average that property cashflow from recent vintages will decline by 15 percent from current levels; the agency also said it expects commercial property values to decline an average of 35 percent from the original appraised amount, because these loans were originated in the peak of the market. For more information, visit Write to Paul Jackson at

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