Fitch to Boost CMBS Subordination Levels?

Fitch Ratings has announced that it is likely to raise its required subordination levels for commercial mortgage-backed securities, citing an increased risk of commercial mortgage loan defaults. The rating agency reported that for a BBB rating, an increase in enhancement levels of 10%-20% would address the greater risk, while a triple-A rated bond would require an additional subordination of 5%-10%. The market is expecting higher commercial mortgage loan defaults, based on the spreads on the CMBX market indices, the rating agency said. However, Fitch said it does not expect defaults to rise as much as the indices appear to be anticipating. "Fitch expects loan defaults to rise given the current capital market environment, but not threefold," said Susan Merrick, managing director and head of Fitch's CMBS group. The rating agency can be found online at http://www.fitchratings.com.