One company has assigned its highest expected investment grade rating to three classes of a single-asset commercial mortgage-backed securitization, but another that examined the transaction but was not chosen to rate it says it would not have assigned its top rating to it as it stands.
The deal, CGCMT 2013-375P, is backed by a $439.8 million portion of a $782.8 million whole loan on 375 Park Ave., in New York, according to a presale report by Kroll Bond Ratings.
Both Kroll and the other company, Fitch Ratings, agree 375 Park is an exceptional property, but Fitch has said the “iconic” office building “contains significant pro forma income that makes the credit enhancement insufficient at AAA,” its highest rating.
Fitch said it believes the loan on the building is “unlikely to incur losses, even at full debt levels,” but it added, “That said, downgrade risk could be material in an environment similar to the recent recession with the realization of pro forma income almost impossible to predict.
“A major reason for highly rated bonds in CMBS 1.0 being downgraded is pro forma income,” Fitch said, noting that because of this it “has been vocal in its resolution not to include pro forma income in analyzing loans in CMBS 2.0.”
However, Kroll managing director Keith Kockenmeister told this publication, “Our analysis did not give any credit to pro forma rents or additional revenue resulting from the remeasurement of the building,” and still supported expected top investment grade ratings for three classes.
He and a colleague also said net cash flows sized up in the expected ratings also were conservative compared to the issuer’s.
“Our NCF was 17.9% lower than the [issuer’s] NCF and our value was 46.7% less than the appraisal value,” added Kroll senior managing director Eric Thompson. “The analysis detailed in our presale took into account the property’s performance in the context of its market.”
From time-to-time rating companies, as Fitch did in this case, issue
Detractors say such actions should be taken with a grain of salt as the company issuing the opinion may be doing it for competitive reasons, but proponents say such a move may help more objectively balance the opinions of the company being paid to rate the transaction and prevent deterioration in ratings.
