RATING ISSUES OF CMBS STRUCTURES

Our paper examines the reliability of ratings assigned to Commercial Mortgage Backed Securities (CMBS) by Credit Rating Agencies (CRA) and tries to define other factors, except ratings, that can influence the spreads on CMBS. The first part of the paper contains a general discussion about the CMBS market and about rating issues that are related to CMBSs. General assumptions and empirical conclusions about the reliability of ratings are drawn. A comparison between CMBS markets and residential mortgage backed securities market is also provided. The second part of the paper contains models, data description and numerical analysis, which is created to prove empirical observations from our first part. Average spread model provides an insight about the general dynamics of spreads for differently rated securities. This model tries to define other general factors that can affect spreads. Regression models elaborate on the numerical results and try to test whether some other factors that are closely related to the issuance or collateral can potentially influence spreads. Conclusions for each of the models are provided in the end of the second part. The last part of the paper contains general conclusions based on the performed analysis. We also summarized all of the previous observations put together in a coherent inference.