Moody's Publishes Request for Comment on CMBS Methodology Update

Summary: Moody's is soliciting feedback on a proposed updated approach to rating CMBS in Europe, the Middle East and Africa.  The proposed change will include the assessment of a minimum yield in analyzing the underlying collateral, to allow for greater stability of Moody's property values throughout the market cycles.  While vague, Moody's also aims to align global default correlation assumptions with those used in the synthetic corporate synthetic CDO methodology.  Moody's projects that the proposed changes will have no impact on current ratings.  The report can be viewed via the link below.

Frankfurt --(Moody's Investor Services)--
Moody's Investors Service has today published a Request for Comment (RFC) seeking market participants' feedback on a proposed update to its approach for rating commercial mortgage-backed securities (CMBS) in Europe, the Middle East and Africa (EMEA).

The report, "Moody's Updated Approach to Rating EMEA CMBS Transactions", is now available on www.moodys.com and can be accessed via the link provided at the end of this press release.

The first part of the report outlines the proposed changes to the methodology, while the second summarises  the complete EMEA CMBS methodology and consolidates the existing methodology reports.

Under Moody's proposed approach, the rating agency will introduce minimum yields into its property value analysis. The minimum yields allow for greater stability of Moody's property values throughout market cycles to mitigate the market value volatility associated with commercial real estate (CRE) prices. Minimum yields will effectively cap Moody's value assessment for a given property cash flow, during peak market situations with low property yields.

Moody's intends to amend the property value stresses implied in its model to consider the increased value buffer that it expects as a consequence of the minimum yield application in peak market situations. The rating agency also seeks to align its global default correlations to assumptions used in its corporate synthetic collateralised debt obligation methodology.

If adopted as proposed, Moody's expects that the implementation of the outlined changes to its methodology will have no rating impact on currently outstanding ratings.

We invite market participants to provide feedback on (1) the proposed use of minimum yields in our approach and (2) the levels of minimum yields that we suggest to use, and make other suggestions for consideration by sending comments before 14 November 2013. Comments should be sent to RFC@moodys.com using the RFC Response Form available on the Request for Comment Topic Page on www.moodys.com.

https://www.moodys.com/research/Moodys-Publishes-Request-for-Comment-on-CMBS-Methodology-Update--PR_284281?WT.mc_id=NLTITLE_YYYYMMDD_PR_284281%3C%2fp%3E