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16 December 2010
CMBS Strategy | Special Report

S&P Releases CMBX Cumulative

Loss Expectations
„ On December 15, 2010 Standard & Poor’s published an update to their
tranche recovery analytics for U.S. conduit/fusion CMBS.

„ The update included aggregate cumulative loss expectations for each

CMBX series and, more importantly, a comprehensive table of loss
percentages by each contract.

Figure 1: S&P’s Cumulative Loss Expectations for CMBX

Very Bullish Bullish Baseline Bearish Very Bearish

Average Losses (%)
CMBX.1 6.1 6.4 6.8 12.1 15.7
CMBX.2 7.2 7.7 8.4 15.4 20.3
CMBX.3 10.3 11.1 11.8 19.9 24.4
CMBX.4 13.9 14.7 15.6 25.1 29.4
CMBX.5 12 12.6 13.3 21.9 26.2

Source: RBS, S&P

„ S&P’s cumulative loss expectations were more bearish than those

reported by NAIC (see our previous report entitled “NAIC Release on
BlackRock's Methodology for Calculating CMBS Losses Boosts
CMBS/CMBX”).

Figure 2: Comparison of Cumulative Loss Estimates

S&P (%) NAIC (%)

Brian Lancaster CMBX.1 6.8 6.7
MBS, CMBS & ABS Strategy CMBX.2 8.4 7.2

+1 203 897 6078 CMBX.3 11.8 10.3

CMBX.4 15.6 12
[email protected] CMBX.5 13.3 9.9

Source: RBS, S&P

Richard Hill
MBS, CMBS & ABS Strategy „ S&P’s results also indicate that the credit performance of earlier series
+1 203 897 4679 of CMBX is expected to be superior relative to the later series, with
[email protected]
CMBX 4 being the worst performer.

„ “AAA” tranches incurred only minor losses (if any) under most
Joseph Ruszkowski, CFA scenarios while all scenarios produced minimal (if any) recoveries for
CMBS Strategy contracts originally rated “BBB” or lower with the exception of those in
+1 203 897 4653 CMBX 1.
[email protected]
„ We’d note that the losses / recoveries appear to be more bullish than
those implied by S&P’s ratings of CMBS deals. S&P seems to
www.rbsm.com/strategy
Bloomberg: RBSR<GO>
 The Royal Bank of Scotland

recognize this as they state that “the assumptions we use for CMBS
recovery analysis are separate and distinct from the criteria we use to
rate CMBS transactions. These recovery metrics are not credit ratings

CMBS Strategy | Special Report | 16 December 2010

and would not substitute for credit ratings, and we do not intend them
to be predictive of future rating performance”.

Figure 3: CMBX Recovery Estimates by Series and Tranche

Very Bullish Bullish Baseline Bearish Very Bearish

CMBX Series Tranche Estimated Recovery (%)
CMBX.1 AAA 100.0 100.0 100.0 100.0 100.0
AM 100.0 100.0 100.0 100.0 99.3
AJ 100.0 100.0 100.0 92.4 67.7
AA 100.0 100.0 100.0 46.7 21.0
A 84.0 80.5 76.7 19.0 0.1
BBB 33.9 27.1 22.4 0.0 0.0
BBB- 12.4 10.0 8.6 0.0 0.0
CMBX.2 AAA 100.0 100.0 100.0 100.0 100.0
AM 100.0 100.0 100.0 93.0 82.0
AJ 94.2 92.7 90.9 60.8 19.4
AA 88.6 87.3 84.6 9.6 1.5
A 73.1 69.6 59.9 2.6 0.0
BBB 11.7 4.6 2.3 0.0 0.0
BBB- 0.0 0.0 0.0 0.0 0.0
BB 0.0 0.0 0.0 0.0 0.0
CMBX.3 AAA 100.0 100.0 100.0 100.0 99.4
AM 100.0 100.0 100.0 81.8 51.7
AJ 92.2 87.6 81.1 17.0 2.6
AA 37.4 30.9 23.5 0.0 0.0
A 12.4 10.2 8.9 0.0 0.0
BBB 0.0 0.0 0.0 0.0 0.0
BBB- 0.0 0.0 0.0 0.0 0.0
BB 0.0 0.0 0.0 0.0 0.0
CMBX.4 AAA 100.0 100.0 100.0 98.8 96.3
AM 97.9 96.1 93.8 46.9 22.4
AJ 61.3 55.9 49.9 6.7 2.7
AA 25.1 14.5 12.5 0.0 0.0
A 10.6 6.4 5.8 0.0 0.0
BBB 0.0 0.0 0.0 0.0 0.0
BBB- 0.0 0.0 0.0 0.0 0.0
BB 0.0 0.0 0.0 0.0 0.0
CMBX.5 AAA 100.0 100.0 100.0 98.8 97.4
AM 97.8 96.5 94.8 67.8 44.6
AJ 78.3 76.8 74.4 18.3 5.2
AA 53.8 43.8 35.7 3.3 0.0
A 29.3 21.7 16.2 3.9 0.0
BBB 2.5 2.5 2.5 0.0 0.0
BBB- 2.0 2.0 1.6 0.0 0.0
BB 0.5 0.0 0.0 0.0 0.0

Source: RBS, S&P

2
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CMBS Strategy | Special Report | 16 December 2010

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