Bangkok--16 Nov--Moody's
Moody's Investors Service is requesting comments on its assessment that Singapore CMBS transactions should hold at least 12 months of liquidity in order to minimize rating linkages with borrowers of mortgage loans.
Singapore CMBS transactions are typically sponsored by Singapore Real Estate Investment Trusts ("S-REIT"), which are the mortgage loan borrowers in the deals.
An S-REIT is an operating entity, can have creditors other than the CMBS issuer, and is not a bankruptcy-remote entity.
"If an S-REIT defaults on its obligations, the other parties can bring legal action, including bankruptcy proceedings, against it. If that happens, there may be cash flow disruption upon a mortgage loan event of default," says Jerome Cheng, a Moody's Senior Credit Officer and the author of the report.
"In fact, such scenarios have happened in other markets. Since the onset of the global financial crisis, there have been several cases in other markets where civil rehabilitation or bankruptcy protection filings have been submitted by the defaulted REITs or property holding companies,"
adds Cheng.
To ensure timely payments on CMBS transactions, certain liquidity arrangements should exist to cover the potential for cash flow disruptions. Such a situation would minimize the linkages between the ratings of the CMBS notes and the ratings of the S-REITs.
Moody's is requesting comments from market participants on its 12-month liquidity assessment and the magnitude of rating linkages with S-REITs.
Moody's will make a decision after it receives and examines the comments.
Moody's final decision will be communicated to the public via a press release.
Please send comments to
[email protected] by December 16, 2009.
A more detailed report, "Request for Comment: Singapore CMBS Liquidity Sufficiency" is available on www.moodys.com.