Moody’s Investors Service said an issue of European commercial mortgage bonds awarded a top credit rating by rival Standard & Poor’s wouldn’t have received an equivalent Aaa grade had it assessed the deal.
It’s the second time this month Moody’s clashed with S&P over a commercial mortgage-back securitization deal it wasn’t asked to rate. The New York-based company cautioned investors Oct. 10 on risks in a deal from JPMorgan Chase & Co., the first such issue Moody’s didn’t grade since at least August 2011.
Europe’s first sale of bonds backed by non-performing commercial mortgages since 2007 doesn’t deserve a top grade for its senior notes because of the quality of the properties and complexity of the underlying loans, Moody’s said in a report. The securities are backed by a loan from Royal Bank of Scotland Group Plc to a company called Isobel Finance No. 1 Plc that’s controlled by the Edinburgh-based lender and a unit of Blackstone Group LP.
“Even a modest decline in interest for distressed real estate assets could impact the workout and expose investors to a sudden and sharp deterioration in property values,” according to London-based Moody’s analysts Lisa Macedo and Christophe de Noaillat.
S&P rated 230 million pounds of class A bonds at its highest investment grade level, according to data compiled by Bloomberg. The 60 million-pound class B notes were rated at AA, its third-highest grade, and the 173 million-pound most junior class C were rated at BBB+, S&P’s third-lowest ranking.
The junior notes would be ranked at least three levels lower by Moody’s, the firm’s analysts wrote.
S&P defended its ratings. “We believe our ratings reflect the creditworthiness of the securities in the transaction,” Mark Tierney, a London-based spokesman at S&P, said in an e-mailed response to questions. He didn’t elaborate.
Moody’s was approached by RBS to provide ratings for the deal although it wasn’t hired, de Noaillat said in an interview.
The transaction helped finance the transfer of 1.4 billion pounds ($2.3 billion) of U.K. property loans off the bank’s balance sheet, S&P said in an Oct. 3 statement. More than 90 percent of the underlying properties are not prime buildings, Moody’s said.