Fitch Ratings last week highlighted the ability of U.K. CMBS transactions to support significant market value declines.

According to Fitch, even if valuation yields for U.K. commercial properties increased to early 1990's recession levels, losses would be less than 0.25% of the balance of triple-A-rated tranches and 9% for all investment-grade tranches based on current property income.

The same calculation based on estimated rental value (ERV) shows even lower losses.

In a more extreme scenario where valuation yields rise to 10%, the study found that losses would be only 3% for triple-A-rated tranches and 20% for investment grade.

"Even so, 12% of transactions have sufficiently low loan-to-value ratios that they show no losses in the 10% scenario," said Andrew Currie, managing director for EMEA structured finance at the rating agency.

But under a mild scenario, based on currently prevailing valuation yields, Fitch said that its research showed no losses for triple-A tranches and 1% for investment grade.

In a moderate scenario, based on 2001 valuation yields, triple-A tranches also show no losses while investment grade show 2%.

Despite the cheery outlook, market analysts said that extension risk remains high given the falling U.K. property values.

"We believe that senior CMBS notes continue to hold significant value, with junior tranches requiring lengthy analysis to gain comfort with property price stability for the assets in question," Societe Generale analysts said.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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