Although Fitch Ratings downgrades for U.K. CMBS are expected to stabilize, the rest of Europe might not have as much luck, according to a Barclays Capital report.
Leaving a bit of room for further U.K. downgrades, in case rents decline more than expected, we expect the Fitch ratings for U.K. deals to be mostly stable for the rest of 2009, said Hans Vrensen, director and head of securitization research at Barclays.
However, the next wave of Fitch downgrades might come from non-U.K. CMBS deals, secured by properties located in the rest of Europe. The expected value declines are at 25% for most French and German commercial properties, compared with 45% peak-to-trough for the U.K..
Vrensen added that, like the U.K. market, rents for European properties are also on the decline. He anticipates that Fitch ratings for non-U.K. deals will be lowered in 2H09.
However, it would be surprising to us if Fitch downgrades many AAA classes, except for perhaps a number of more recent vintage conduit transactions, Vrensen said. Based on this, we expect relatively less AAA Fitch downgrades of non-U.K. European CMBS compared to U.K. CMBS of the same vintage.
Fitch also said that it disregards the Commercial Mortgage Securities Association (CMSA) E-IRP reporting standard as many servicers do not use them and the figures in these reports seemed unreliable.
We hope that Fitch will work closer with CMSA and servicers to implement the version 2 of the E-IRP to allow more standardization in the market, especially on cash flow analytics, Vrensen said.