SEC Suspends S&P From Rating Certain CMBS As Part Of $77 Million Settlement

On January 21, 2015, the SEC suspended Standard & Poor’s Rating Services (S&P) from rating conduit/fusion CMBS for one year as part of a settlement between McGraw-Hill Financial Inc., S&P’s parent company, and the SEC.  The settlement stems from S&P’s disclosures in 2011 that it would utilize a certain methodology to rate six CMBS transactions and provide a preliminary rating for two others, when it actually used a different methodology, forcing S&P to pull a rating on a $1.5 billion bond that same year.  In addition, S&P agreed to retract an allegedly untrue and misleading article that it published in 2012 and settled another claim that it failed to maintain and enforce internal controls regarding changes to its monitoring standards for certain RMBS.  S&P further agreed to parallel settlements with New York Attorney General Eric Schneiderman and Massachusetts Attorney General Maura Healey.  The rating agency has also agreed to pay more than $77 million to settle these claims with the federal and state regulators ($58 million to the SEC and another $19 million to New York and Massachusetts).  SEC Settlement Order 1SEC Settlement Order 2SEC Settlement Order 3.

Rating Agency Developments

On December 10, Moody’s released its approach to rating sustainable net cash flow for CMBS and CRE CDO CLO Real Estate collateral in the Americas and ex-Japan Asia Pacific.  Approach

On December 10, Moody’s released its approach to rating US and Canadian Conduit/ Fusion CMBS.  Approach

On December 10, Fitch released its criteria to rating U.S. fixed-rate multiborrower CMBS surveillance and re-REMIC criteria.  Criteria

On December 9, Fitch released its guidelines for rating prefunded U.S. municipal bonds.  Guidelines

On December 9, Fitch released a table of covered bonds spread levels.  Table

On December 8, Moody’s released its methodology for rating business and consumer service industry.  Methodology

On December 8, Moody’s released its methodology for rating global oilfield services industry.  Methodology.

Rating Agency Developments

On December 12, Moody’s released its methodology for rating intellectual property ABS.  Moody’s Report.

On December 12, Fitch released its criteria for rating pooled multifamily housing bonds.  Fitch Report.

On December 11, Fitch released its criteria for surveillance of existing U.S. CMBS fixed-rate and multi-borrower transactions.  Fitch Report.

On December 9, DBRS issued a request for comment on rating CLOs and CDOs of large corporate credit.  Comments must be received by January 6, 2014.  DBRS Report.

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Rating Agency Developments

On December 2, Moody’s released its updated approach to rating Europe, Middle East and Africa CMBS.  Moody’s Report.

On December 2, DBRS released its methodology for rating U.S. credit card ABSDBRS Report.

On November 28, DBRS released its operational risk assessment procedures for servicers of European Structured Finance (ESF) products.  DBRS Report.

On December 5, Kroll released its request for comment on its proposed methodology for assessing non-Qualified Mortgage risk in U.S. RMBS.  Kroll Request.

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Judge Denies Dexia’s Bid to Dismiss MBS Claims as Time-Barred

On June 6, Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York denied Dexia Real Estate Capital Markets’ (Dexia) motion to dismiss breach of contract claims brought by U.S. Bank National Association (U.S. Bank), in its capacity as trustee for a CMBS trust.  U.S. Bank alleges that Dexia breached a representation concerning the enforceability of all agreements related to a particular loan and then refused to repurchase the loan when notified of the breach.  Moving to dismiss, Dexia argued that U.S. Bank’s claim was untimely because it was filed more than 6 years after the governing agreements were entered into and the representation at issue was made.  Rejecting Dexia’s argument, Judge Scheindlin concluded that under the terms of the governing agreements, U.S. Bank was only entitled to make a repurchase demand upon Dexia once a breach had “materially and adversely” affected a loan.  She further found that U.S. Bank’s complaint pled facts sufficient to suggest, in connection with the particular representation breach alleged by U.S. Bank, that there was no material and adverse effect until a 2011 Minnesota state court decision holding that a guaranty securing the loan was unenforceable.  Order.

Rating Agency Developments

On June 13, S&P released its insurance criteria for U.S. and Canadian CMBS transactions.  S&P Report.

On June 13, Fitch released its criteria for assigning short-term ratings for variable-rate demand obligations (VRDOs) or maturing commercial paper (CP) notes based on internal liquidity.  Fitch Report

On June 12, Fitch released its criteria for rating caps and limitations in global structured finance transactions.  Fitch Report

On June 12, DBRS released its methodology for European structured finance transactions.  DBRS Report

On June 11, DBRS released its methodology for CDOs of large corporate credit.  DBRS Report

On June 11, DBRS released its methodology for Canadian structured finance surveillance.  DBRS Report

On June 10, Fitch released its criteria for rating U.S. timeshare loan ABSFitch Report

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On April 26, Fitch released its criteria for U.S. RMBS originator review and third-party due diligence.  Fitch Report. 

On April 24, Fitch released its criteria for rating CMBS in Asia-Pacific.  Fitch Report. 

On April 22, Fitch released its criteria for rating asset managers.  Fitch Report. 

On April 19, Fitch released its criteria for U.S. RMBS cash flow analysis.  Fitch Report. 

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Rating Agency Developments

On November 14, S&P requested comments on its proposal to revise its hybrid capital criteria for corporate issuers.  Comments must be submitted by December 16.  S&P Release. 

On November 14, DBRS published its CMBS North American surveillance methodology.  DBRS Report. 

On November 14, DBRS published its European CMBS rating methodology.  DBRS Report. 

On November 13, Fitch published a report summarizing feedback received on its updated covered bonds rating criteria.  Fitch Report.

On November 13, Fitch updated its corporate recovery ratings criteria.  Fitch Report. 

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Rating Agency Developments

On September 27, Fitch updated its global rating criteria for trade receivables securitizations.  Fitch Report. 

On September 26, S&P requested comment on collateral coverage and issue notching rules for “1+” and “1” recovery ratings on senior bonds secured by utility real property.  S&P Report.     

On September 21, Fitch updated its criteria for analyzing large loans in U.S. CMBS.  Fitch Report. 

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Rating Agency Developments

On September 5, S&P released its methodology for U.S. and Canadian CMBS. S&P Report.

On September 5, S&P released its CMBS global property evaluation methodology.  S&P Report.

On September 5, DBRS released its criteria for holding companies and their subsidiaries.  DBRS Report.

On August 31, DBRS released its solar power project criteria. DBRS Report.

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