Moody's Cautions on Split Notes in CMBS

The splitting up of the senior notes of large loans in commercial mortgage-backed securities deals into parallel pieces that are securitized into different pools has given rise to some concerns, according to Moody's Investors Service.The rating agency said more attention needs to be paid in the CMBS rating process to the "complex relationship" between the holders of the split notes. However, "with defaulted loan control rights and advancing decisions among the trusts evolving into more diffuse structures from the original one-servicer-fits-all approach, we do not believe that this complexity has yet reached the stage where credit support adjustments are necessary," Moody's said. Such structures became more prevalent in the post- 9/11 world as it became difficult to obtain adequate or affordable terrorism insurance on many high-profile properties, according to Moody's. Fitch Ratings has voiced similar concerns. Moody's can be found online at http://www.moodys.com.