Course Objectives

Participants will be equipped to:

• Use a structured approach to understand the risk profile of securitised commercial mortgage debt by evaluating the asset quality and transaction structure, including originator and servicer
• Understand the impact of key real estate variables on risk assessment models
• Evaluate cash-flow waterfall priorities and other structural protections
• Assess the relative risks and rewards of European CMBS asset classes, such as single borrower, multiborrower, sale/leaseback and synthetic structures.

Target Audience

A two-day workshop for investors, issuers, servicers and those involved or interested in European CMBS credit risk management.

The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience to see what level of prior knowledge is required for a specific course.

Content

INTRODUCTION

• Issuer/Originator motivations and development of the market
• Parties to the transaction and their roles

PURPOSE: PAYBACK

Analytic approach to credit

• Introducing a structured approach to analysis: purpose, payback, risks and structure
• Application of the structured approach to various types of CMBS securities

RISKS TO REPAYMENT

Collateral analysis

• Identifying key variables which will impact the likelihood of default and severity of loss
• Market analysis and site inspections
• Importance of property quality on cash-flow
• Examining rent rolls for tenant quality and lease terms
• LTV and DSCR
• Stressing cash-flows: the use of historical performance data in sizing credit enhancement
• Model approach: deriving credit enhancement requirements
• Multi-jurisdictional issues

Servicer and originator evaluation

• Role of the servicer: the ability to preserve value
• Servicer ratings: why, how and impact on credit enhancement
• Qualities of strong originators

STRUCTURE

Credit enhancement

• Understanding and evaluating the differing types of credit enhancement: internal versus external

Note Profile

• Understanding how waterfall structures determine the priority of payments
• Expected and rated maturity
• Available funds caps
• Use of excess spread
• A/B notes

Structural safeguards

• Access to liquidity: evaluating liquidity providers and alternative structures
• Establishing, maintaining and adjustments to reserve funds
• Mitigating risk through the use of swaps
• Synthetic transactions and reference pools
• Substitution of assets
• Further advance controls: criteria hurdles
• Loan covenants

Legal safeguards

• Isolation of assets
• True sale vs. synthetic structures
• Representations and warranties
• Events of default

MONITORING PERFORMANCE

• The need for disclosure: timely and adequate reporting
• Surveillance: expectations versus performance through the cycle
• Interpreting performance to identify early warning signals
• Upgrades and downgrades

RELATIVE VALUE

• Comparing corporate bond performance to securitised issues
• Spreads across the credit spectrum and asset classes.