While commercial mortgage-backed securities have experienced a major boost over the past few years, a move by the U.S. Securities and Exchange Commission to suspend ratings agency Standard & Poor’s abilities to rate CMBS could dampen future growth, commercial real estate data firm CoStar Group reported December 10th.
Reportedly, the SEC is looking to suspend S&P from rating CMBS because of its investigation into claims the firm “tweaked” it criteria for rating securities in an effort to win customers.
S&P says it has been cooperating with the SEC investigation and is hoping to resolve the matter quickly.
Financial firm Nomura Securities International has said a suspension could potentially curb investors’ appetite for S&P-rated bonds. Through November, total new 2014 CMBS issue volume appears likely to eclipse that of 2012, particularly with low interest rates and increasing property values, but that could now change.
“The bigger implications lie within the large loan market, where suspension has the potential to dampen CMBS issuance in the year ahead,” Lea Overby & Steven Romasko, Nomura analysts, told CoStar Group. “Although it is possible that the SEC will restrict the suspension to the conduit space, where S&P’s footprint is much smaller, we believe that it is highly likely that the action will be applied to all of S&P’s ratings.”
Overby & Romasko said they think a lengthy S&P suspension could curb CMBS issuance since investors typically require ratings from at least one of the Big Three rating firms before making a move. With ratings agencies Moody’s and Fitch requiring higher credit enhancement levels than S&P, the result could be limited profits for CMBS issuers.
According to CoStar, Credit Suisse has said it would “significantly raise borrowing costs” were the SEC to suspend S&P’s CMBS ratings.