Moody’s Proposal May Trigger CMBS Downgrades, Analysts Say

Moody’s Investors Service has proposed changes in rating criteria that may trigger cuts on commercial-mortgage bonds, according to Deutsche Bank AG (DBK) and Credit Suisse Group AG analysts.

The rating company has requested comments on altering the way it treats so-called interest-only classes of securitized debt, which could affect bonds from $600 billion of deals backed by commercial property loans, Deutsche Bank analysts led by Harris Trifon in New York said in a report yesterday.

Moody’s expects the ratings criteria to be implemented in the first weeks of 2012. This could force some investors to sell their holdings as these securities, composed of interest payments on the underlying loans, typically carry top grades, the analysts wrote.

The “most striking example” is an interest-only portion of a deal by JPMorgan Chase & Co., sold just two months ago, which could lose its AAA grade, Credit Suisse analyst Roger Lehman, said in a report yesterday.

Many interest-only securities are held by investors that aren’t sensitive to ratings, and wouldn’t likely be traded in the wake of downgrades, Credit Suisse said.

To contact the reporter on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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