Standard and Poor’s Has No Plans to Downgrade CMBS Deals for Terrorism Coverage

June 11, 2002

According to analysts, Standard & Poor’s does not intend to place existing commercial mortgage-backed securities transactions on CreditWatch or take any downgrade action because of terrorism insurance issues.

The lack of empirical data and the nature of terrorism, Standard & Poor’s believes, make it difficult to quantify the risk of terrorism as it relates to any particular transaction in an accurate and nonarbitrary manner. Standard & Poor’s indicated it will continue to rate new transactions without making adjustments to credit levels for reasons specifically tied to terrorism insurance coverage.

Standard & Poor’s said its criteria with regard to terrorism insurance coverage remain unchanged, and it will continue to disclose to investors those transactions not consistent with criteria requirements. Ratings will not reflect, however, the probability of a terrorist event occurring or the loss severity associated with such an event. Standard & Poor’s, in light of the size of the U.S. property market and the limited history of terrorism, considers the risk of an act of terrorism for any particular property to be limited.

Standard & Poor’s added that it believes that the terrorism insurance environment is still evolving regarding the number of providers writing insurance, the amount of coverage available for various properties, and the exclusions characterizing available coverage.

It indicated it also recognizes that the U.S. government may still act to provide backstop relief with regard to this issue. Thus, the changing characteristics and potentially short-term nature of the current environment make rating action at this time premature and potentially more disruptive than warranted by the current risk associated with acts of terrorism.

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