Friday, February 6, 2009

Moody's Continues Dismantling CMBS Market

Moody's just laid down the law and downgraded 12 classes, or $2.4 billion worth, of Bank of Countrywide Lynch's CMBS 2006-6 Series (that's Bank of America for you Bono fans)

Warren Buffett's rating agency said the reasons for the downgrade were "higher expected losses for the pool resulting from increased leverage, reduced debt service coverage, and anticipated losses from loans in special servicing. Moody's also affirmed nine classes."

Due to the current economic recession, Moody's expects a significant overall decline in future property cash flows as a result of a higher incidence of tenant defaults and bankruptcies and a sharp decline in lease renewal rates. This drop in cash flows is likely to lead to a marked increase in term defaults on commercial mortgage loans from the 2006 through 2008 cohort of conduit/fusion loans because many of these loans were underwritten with significant upside at a peak point in the real estate cycle and valued using historically low capitalization rates. Moody's review of all deals from these vintages is to ensure that the ratings reflect our expectation of their weaker future performance in an adverse economic climate.

As of the January 12, 2009 distribution date, the transaction's aggregate certificate balance has decreased by less than 1% to $2.5 billion. The Certificates are collateralized by 118 mortgage loans ranging in size from less than 1% to 12% of the pool, with the top 10 loans representing62% of the pool.

Moody's weighted average conduit loan to value ("LTV") ratio is 136% compared to 108% at securitization. Moody's actual debt service coverage ratio ("DSCR") is 1.12X compared to 1.33X at securitization. Moody's actual DSCR is Moody's estimate of net cash flow divided by actual debt
*** Reference point: chart of recent prices of the various tranches in CMBS 5.
Sphere: Related Content
Print this post