CMBS Issuance Edges Up With Momentum from Hotels

Moody's is expecting issuance of U.S. commercial mortgage-backed securities to touch $100 billion for 2005, following issuance of $93 billion for 2004.

Tad Philipp, managing director for CMBS, Moody's, said, "U.S. issuance will be boosted by several new issuers and by hotel-backed transactions returning to favor helping top off an already robust pipeline.

"In addition we expect to see the introduction of new collateral types such as condo conversion loans, as well as further development of synthetics."

As well, a number of loans are maturing this year that were made during the peak origination years of the late 1990s and are eligible for refinancing.

Mr. Philipp expects that many of these loans are likely to refinance with higher proceeds than the last time around considering that property prices have appreciated and interest rates have fallen since the late 1990s.

Moody's is also anticipating a continued shift towards larger deals, a trend that the rating agency says began in 2004.

"Larger deals introduce efficiencies on several levels, helping drive their growing popularity. From the investor perspective, the larger class sizes of bigger deals offer greater liquidity. From an issuer perspective transaction, costs can be reduced by coming to market somewhat less often but with larger deals," Mr. Philipp said.

And from Moody's point of view, "Some of the larger deals may provide greater diversity and less ratings volatility" since loans that would "otherwise cause concentration issues appear smaller in the context of the larger deals."

The rating agency expects to see more issuance of traditional conduits in 2005, after several years in which fusion deals dominated fixed-rate issuance.

They also exp-ect to see more investment grade upgrades than downgrades.

In 2004, Moody's saw a continued growth in the collateralized debt obligation structure and reviewed 15 such transactions with a total issuance amount of over $7 billion.

Last year also saw an increase in the amount of leverage and both the average loan-to-value and the share of loans with LTVs over 100% were at new highs in the fourth quarter, according to Moody's.

"The average conduit loan LTV during the fourth quarter was 95%, up from 94% the prior two quarters. Approximately 29% of conduit loans exceeded 100% Moody's LTV, up from 22% during the third quarter," Mr. Philipp noted.

Of the 28 CMBS transactions rated by Moody's in the fourth quarter, which had 191 CMBS classes, there were 82 affirmations, 69 upgrades and 40 downgrades, the rating agency reports.

Moody's is a New York based bond rating company. The company's ratings and analysis track more than $30 billion of deals across the world.

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