Only vulnerable super-senior classes in CMBS are exposed to the risk of interest shortfalls that affected the super senior class of Morgan Stanley Capital I, 2007-HQ13, according to Fitch Ratings.
Last week MSC 2007-HQ13 became the first deal to stop paying interest to the senior most class of bondholders, according to a special report published by Trepp. But Fitch said in its report today that it doesn’t believe this trend will be widespread in CMBS deals.
Instead only CMBS deals that have already experienced a high percentage of realized losses, a large amount of appraisal reductions, and increasing loan concentration, could see an interest shortfall happen on the super senior classes.
The ratings agency said that pools with a larger proportion of senior classes and a larger proportion of interest due may also be at risk of interest shortfalls on the most senior classes.
“We expect these events to be rare,” said Fitch analysts in the report. “In our view, most transactions with performance problems are likely to experience shortfalls up to the AJ or AM classes.”
Bonds most vulnerable to an interest shortfall are likely not to have a rating higher than 'A', said Fitch. Fitch's downgrade of the super seniors of J.P. Morgan Chase, 2008-C2 is an example. This transaction was characterized by increasing loss expectations and escalating interest shortfalls.