S&P: CMBS Downgrades Rise, Hit High-Rated Bonds

Downgrades of North American commercial mortgage-backed securities rose in the first quarter and, contrary to recent experience, many stemmed from real estate performance and applied to investment-grade bonds, according to Standard & Poor's Ratings Services.Of the 49 CMBS downgraded in the first quarter, 25 involved investment-grade classes, S&P reported in the latest issue of its Structured Finance Global Ratings Roundup Quarterly. "As the real estate markets have weakened, the stress is being felt on larger, high-profile properties and assets, which is affecting the higher ratings," said Roy Chun, a managing director in S&P's Structured Finance Surveillance group. "Before mid-2002, it was rare to see investment-grade downgrades on CMBS transactions, primarily because of the strong real estate markets." The lodging sector continues to be "the primary cause" of CMBS downgrades, and nearly all the deals downgraded during the quarter resulted from weaker-performing lodging collateral, the report says. S&P can be found online at http://www.standardandpoors.com.