Watch listings done by Moody's Investors Service and Standard & Poor's more often lead to CMBS downgrades than those put out by Fitch Ratings, said a recent report by Nomura Securities International. Aside from this, Nomura said that CMBS downgraded by S&P or Fitch will most likely experience repeat downgrades compared to those that were taken down by Moody's.

The report, which is called "CMBS Watch Listings, Downgrades and Surveillance," focuses on three major issues. It looks at how well watch listings predict CMBS downgrades as well as the differences in credit quality deterioration for CMBS that are rated at different levels. The study, which covers 335 downgraded CMBS tranches, also examines instances in which CMBS go through repeat and multiple downgrades.

Results of the study show that more than 50% of CMBS watch listings by Moody's and S&P have been followed by downgrades. In contrast, only about a quarter of Fitch watch listings eventually yielded downgrades. Furthermore, the report said that the difference between the Fitch figure and the S&P and Moody's number were statistically significant at the 99% level.

"This arguably suggests that Fitch's process for watch-listing CMBS and then resolving watch listing is fundamentally different from those of S&P and Moody's," Nomura said.

Researchers added that the difference in proportions between Moody's and S&P is not really significant statistically. Based on these findings, buysiders can now adapt the magnitude of their response to CMBS watch listings from the different rating agencies, Nomura said.

CMBS rated by either S&P or Fitch experienced repeat downgrades approximately two times more than those rated by Moody's. About a third of CMBS demoted by S&P were cut two or more times. Fitch has a similar number of repeat downgrades. Meanwhile, only about 15% of Moody's CMBS downgrades were lowered more than once.

"The reason behind the difference between Moody's proportion and the others' is somewhat unclear," wrote the authors of the report. "It might be that S&P and Fitch are more tentative or hesitant than Moody's in downgrading CMBS."

Researchers acknowledged that this might also mean that S&P and Fitch are more methodical, meaning that they take repeat downgrade actions when credit quality deteriorates gradually over time. But this does not mean that Moody's CMBS downgrades are larger, meaning they do not involve a movement of more rating notches, on average, than its competitors'.

The study also noted that both S&P and Fitch have agreed most often in downgrading CMBS. The report said that for those downgraded CMBS rated by at least two rating agencies, those covered by both S&P and Fitch showed the most propensity (41%) for being downgraded by both agencies. Also, in the case of CMBS downgraded by at least two rating agencies, the time between the downgrade by the first rating agency and the second was barely a month in about half of all the cases, the report said.

The study consisted of deals that were issued from 1992 through 2002, and that were downgraded sometime during this period.

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