S&P Mulls Loosening CMBS Ratings Criteria After Freeze-Out

Lowering the bar for commercial-mortgage bond deals?

Aug. 3 (Bloomberg) -- Standard & Poor’s, frozen out of the commercial-mortgage bond market since last year, is changing its method for rating the instruments in a way that may produce higher grades for some securities.

The preliminary criteria that S&P released in June would result in higher rankings for the three deals that it has rated since then, according to reports distributed to investors by the company. For a $340 million offering of mall debt that Morgan Stanley sold yesterday, S&P said its new methodology would rate the entire deal investment-grade, while the old criteria resulted in $29.7 million of unrated debt.

S&P is using lower recovery rates in its model for defaulted mortgages, offsetting the effect of higher property values on ratings, the New York-based company said in a June 4 report requesting comments on its proposal.

Ed Sweeney, a spokesman for S&P, cited the June 4 report stating “more positive rating movements are expected for transactions issued in 2009 or later,” and declined to comment further

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