Fitch Cautions on Mex CMBS Collateral

Accepting Mexican assets in U.S. commercial mortgage-backed securities transactions may carry extra credit risk for investors, according to Fitch Ratings.Cross-border lending may expand if CMBS investors become comfortable with accepting Mexican assets, but Fitch "remains cautious" because of inherent risks in loans with Mexican collateral, said director David Harrison. "Structural mechanisms such as liquidity facilities, currency swaps, offshore sponsorship, and political risk and currency conversion insurance, can help mitigate the risks associated with cross-border lending," Mr. Harrison said. But even with adequate structural features, a loan backed by Mexican collateral "can only be tranched three to four notches above the country ceiling," he said. Fitch senior director Sam Fox said geopolitical and economic instability that results when a sovereign nation nears default "will also affect the value of collateralized properties in CMBS transactions, which makes loans backed by Mexican collateral more susceptible to greater losses in default than similar loans backed by U.S. collateral." Fitch can be found online at http://www.fitchratings.com.