The primary risk in some large loan CMBS transactions issued in 2014 is the absolute level of debt, said Fitch Ratings in a report this week.

The ratings agency said that debt at ‘BBB-’ or below, in certain large loan CMBS deals, is too much for those ratings.

“This is compounded by the fact that often times there is secondary debt in the form of mezzanine finance of second mortgages,” said CMBS group head Huxley Somerville in a Fitch webcast. “So the overall leverage we feel is too much at  ‘BBB-’ and below for the ratings that they are getting.”

For example, Fitch did not rate four recent large loan transactions that  because it felt the levels of debt and their assigned ratings of ‘BBB−sf’ and below were not warranted. Those transactions are: Wells Fargo Commercial Mortgage Trust 2014-TISH; CGBAM Commercial Mortgage Trust 2014-HD; GS Mortgage Securities Corp. Trust 2014-NEW; and GP Portfolio Trust 2014-GPP.

Fitch expects that these transactions will perform over the term of the transaction; the concern is the refinancing risk when the loans mature.  “When it come time to refinance the deal there could be some problem because we could expect to be in an higher interest rate environment and if that were to occur then you could expect to see downgrades to those transactions,” said Somerville.

Last year, the concern was over the levels of debt at the senior level. The ratings agency said then, that too many average properties were getting trophy like attributes assigned to them, which created  large amounts of triple-A debt on transactions.

In 2014, the property quality behind large loan CMBS has improved and Fitch said it “is reasonably comfortable with level of triple A debt”

" CMBS is competitive right now withinsurance companies and balance sheet lenders for loans on large high quality, commercial real estate," said Somerville.

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