Standard & Poor's is requesting feedback on a supplementary analytic that offers an estimate of the recovery level, given a default, for individual CMBS tranches under various scenarios, S&P said in a report released today.

This analytic would complement the rating agency's traditional credit ratings that focus on the likelihood of default as the primary measure of creditworthiness.

S&P is encouraging everyone interested to submit comments by Sept. 30. Send written comments to After reviewing the comments, S&P will publish a description of the final recovery analytic and the related methodology.

By offering ongoing estimates of expected losses and recovery projections for individual CMBS classes under various scenarios, the rating firm intends to enhance transparency and provide insight into CMBS deals' future performance.

S&P is proposing to express the estimated recovery values as a percent of the current outstanding tranche balance. Any value that is less than 100% would indicate a less-than-full repayment for that class under the given scenario, and thus, a principal loss.

The CMBS recovery analytic would only be applicable for U.S. conduit/fusion CMBS deals. The recovery metrics are aimed at offering a supplementary analytic that would complement and enhance S&P's traditional ratings.

The CMBS recovery analytic would provide a framework that might be useful for comparing the expected performance and recovery prospects of different CMBS tranches under various predefined scenarios.

It uses a number of simplifying assumptions that allow the rating agency to apply a common framework to the large universe of CMBS offerings. It is a uniform, rules-based scenario analysis that is different from one that includes an underwriting analysis of property-level cash flows.

This is why the recovery analytic framework has limitations and might not capture all of the complexities associated with analyzing and valuing commercial real estate. S&P bases its method to analyze the capital charges for insurers' CMBS portfolios on its updated analytical approach for  conduit and fusion CMBS pools.


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