Closely Watched CMBS Suit Seen Nearing Settlement

A suit that left securitized commercial mortgages affiliated with the bankrupt General Growth Properties exposed to potential losses and highlighted the limits of securitizations' "bankruptcy remote" nature is close to finalizing a settlement that would alleviate the loss concern, according to Fitch Ratings. "Settlement terms have been reached between a group of special servicers and GGP for 73 CMBS loans securitized in various CMBS transactions included in the April 2009 Chapter 11 filing of GGP," the rating agency said. The settlement would "convert U.S. CMBS loans affiliated with [GGP] back to performing status" and if confirmed by the bankruptcy court, 92 properties would emerge from bankruptcy within the next 60 days and would return to performing loan status 60 to 90 days thereafter." The bankruptcy remote special-purpose entities that commercial mortgage-backed securities and other securitizations are issued through are not - as Fitch notes and the case illustrates - completely "bankruptcy proof." However, if the case is settled as agreed it would show SPEs are still effective, as it would demonstrate that they do allow for a situation in which mortgages can be removed intact from a bankruptcy, according to Fitch senior director Adam Fox.