After receiving feedback on its rating methodology and assumptions through a Request for Comment in June, Standard & Poor's today published its revised criteria for U.S. and Canadian CMBS transactions.
The new criteria cover the rating agency's methodology for deriving credit enhancement levels and its global property evaluation methodology, the rating agency said in a release this morning.
There is a difference in the impact between the RFC and the final version. The final criteria's impact in terms of rating revisions is more muted.
Initially, in the RFC, the agency projected the criteria changes would affect about 25% of the outstanding U.S. and Canadian CMBS ratings.
However, the rating agency only placed 744 classes from 188 deals or 10.5% of these ratings on CreditWatch as a result of the new criteria. The affected tranches have an aggregate current principal amount worth $101.8 billion, S&P said in a separate release.
S&P has placed 317 ratings on CreditWatch positive or $67.1 billion and 405 on CreditWatch negative or $34.4 billion. Meanwhile, 22 were placed on CreditWatch developing or $253 million.
Final Changes Made
S&P incorporated the market's feedback into its criteria by developing added diversity adjustments that differentiate further a deal that is well-diversified at rating levels less than 'AAA'. The 'AAA' diversity adjustment remains unchanged.
The agency also added LTV threshold adjustments to separate out more those that have amortization schedules that vary from 10-year term and 30-year amortizing loans. The criteria also specify more LTV threshold adjustments for loans that have amortization schedules between 15 and 25 years and 15 years and less.
The rating agency revised the adjustment factors for multifamily loans originated to be part of Freddie Mac's program and Canadian loans to 0.6 for diversified deals. The revisions result in possibly less adjustment for the GSE's multifamily loans and more adjustment for Canadian loans. The proposed adjustment factors for Freddie Mac and Canadian loans were 0.5 and 0.7, respectively, the agency said.
It also lowered the LTV threshold used to determine the magnitude of any subordinate debt adjustments to an S&P LTV of 90% from an S&P LTV of 100%, the rating agency said in the announcement.