A downgrade in the U.S. sovereign credit rating to as low as BBB from its AAA rating could impact the rating of structured debt, including commercial mortgage-backed securities and residential mortgage-backed securities, Robert Vrchota, managing director in Fitch Ratings' commercial mortgage department, said Thursday at the National Council of Real Estate Investment Fiduciaries conference in Chicago.
“Fitch has stated that if the U.S. government were not to make an interest payment or principal payment, those securities would go to BBB+ and the (U.S.) sovereign rating would be on ratings watch negative,” Mr. Vrchota said, responding to an audience member's question.
This means that Fitch would review U.S. sovereign credit for six months before a downgrade. Purely placing the U.S. credit rating on watch negative would not impact the ratings of CMBS and other structured debt, which are not guaranteed by the government, Mr. Vrchota said. That debt would not be downgraded.
However, it would be difficult to retain a AAA rating on any structured debt if the sovereign is rated BBB, he said.
That portion of CMBS that is backed by high-quality properties would retain a AAA rating, he said. CMBS backed by lower-quality properties might have a problem fending off a downgrade.