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Citigroup, Goldman Yank $1.5B CMBS Deal

With ""Standard & Poor's"":http://www.standardandpoors.com/home/en/us refusing to rate their criteria for commercial mortgage-backed securities, ""Citigroup Inc."":http://www.citigroup.com/citi/homepage/ and ""Goldman Sachs Group Inc."":http://www2.goldmansachs.com/?cid=PS_01_05_06_99_01_01 withdrew their joint $1.5 billion bond sale of the financial products Thursday ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a last-minute game change that sent shockwaves through the industry.

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Releasing a joint statement to address the controversy, Citigroup and Goldman said that the ratings agency failed to move forward as a result of an internal ""application of conduit/fusion commercial mortgage-backed securities ratings criteria.""

""_Bloomberg News_"":http://www.bloomberg.com/news/2011-07-28/goldman-sachs-citigroup-scrap-cmbs-that-s-p-won-t-rate-1-.html reported that the banks had triggered a ratings review need by S&P by raising the threshold for lower-ranked debt set to take the brunt of potential losses, thereby shielding AAA securities from defaulted loans. Graded debt shot to 20 percent from 14.5 percent as a result.

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The news service said that investors had brought concerns to Citigroup and Goldman over fears that ratings from ""Morningstar Inc."":http://www.morningstar.com/ and S&P failed to account for actual risk.

According to ""TheStreet.com"":http://www.thestreet.com/story/11203758/1/ratings-agencies-get-tough-wreak-havoc.html, S&P made the decision to hold off on rating the bond sale because of image and credibility problems stemming from its reluctance to review U.S. credit and the credit of European nations struggling with debt.

""The ratings agencies are engaged in some sort of campaign to restore their credibility,"" the Web site reports Arturo Cifuentes, a University of Chile professor with past testimony experience before Congress, as saying.

""This is a debacle of epic proportions,"" the ""_Wall Street Journal_"":http://online.wsj.com/article/SB10001424053111903635604576474512528770304.html reports Paul Norris, structured products lead at Dwight Asset Management, as saying. ""Confidence in S&P had already been a bit shaky over how they approached previous deals. I don't see how a dealer or investor in the near term can trust their ratings.""

""I've never seen this happen, to the extent where a deal was so far along, ever,"" said David Viklund, a laywer at ""Paul Hastings"":http://www.paulhastings.com/, according to the _Journal_, remarking that it the loss of the deal could crimp commercial property availability over the next several months.

The collapse of the deal raised concerns over commercial mortgage bonds markets, with _Bloomberg_ reporting that sales are up by $21 billion ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô some $10 billion more than last year.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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