Will Terror Act Spur CMBS Upgrades?

Moody's says it may upgrade the commercial mortgage-backed securities deals that were downgraded last year on terrorism insurance-related concerns if adequate insurance policies are procured on the assets following the implementation of the Terrorism Risk Insurance Act of 2002.However, Moody's analyst Daniel Rubock said the rating agency is concerned that there could be delays by the Treasury in certifying a terrorist act as being of foreign origin (the act does not cover domestic terrorism). This could cause delays in paying out insurance proceeds. In addition, insurers are not required to notify lenders of what borrowers are doing about terrorism insurance coverage. The real estate industry has urged the Treasury to adopt regulations requiring that commercial mortgage lenders and servicers be "put in the loop" on terrorism insurance. While the legislation is limited to acts of foreign terrorism, Moody's said it believes that will suffice to allow CMBS bonds to meet acceptable risk levels and merit the highest investment-grade ratings. The rating agency can be found online at http://www.moodys.com.