Triple-A investors are increasingly turning to resecuritizations as a technique to partially hedge against the risk of ratings downgrades in their triple-A holdings, said Moody’s Investors Service analysts.
“The CMBS resecuritization trend began in July,” analysts said. “The pricing last week of Credit Suisse’s third resecuritization marks the ninth CMBS resecuritization rated by us.”
The resecuritization is usually carved up into senior and junior portions representing 72% and 28% of the resecuritization, respectively, they said. This creates a senior resecuritization tranche with 50% credit support relative to the underlying deal and a junior resecuritization tranche that attaches at 30% credit support and detaches at 50% credit support, again relative to the underlying pool.
Features included within several recently closed deals further point to investor concern about future CMBS market volatility and downgrade risk, and the need for a hedge against these concerns. These include exchange certificates and z-bonds that provide certain investors with even more protection against loss and ratings volatility, Moody's analysts said.