Fitch: U.S. CMBS Continues to Outperform Corporates; Subordination Levels Lowered.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 9, 2004

Investors need not worry about declining subordination levels for U.S. commercial mortgage-backed securities transactions according to a special report by Fitch Ratings. The CMBS sector has seen much more systemization and discipline through the capital markets over the past decade, a stark contrast to the conservatively rated early CMBS transactions that contained distressed assets and little collateral property information.

"Increased discipline and transparency has resulted in strong CMBS performance as loans being securitized today undergo multiple levels of scrutiny, and with a vastly improved flow of information," said Jenny Story, Managing Director, Fitch Ratings. "While CMBS performance will always be cyclical, increased transparency enables issuers and investors to spot trends sooner and react more quickly, which may moderate cycle severities."

Throughout the fourteen-year history of the CMBS market, below investment grade rated corporate bonds have had a 55% cumulative default rate while comparably rated CMBS bonds have had a 1.61% cumulative default rate, indicating that levels set over the past decade were too high. "Fitch strives to create structured finance bonds that perform similarly over time to corporate bonds," said Story.

Improvements to CMBS deal composition has also contributed to the decline in subordination levels. For example, the prevalence of experienced sponsors is a trend that Fitch generally views as positive for the sector. "More sophisticated borrowers often own better quality collateral that is operated with more effective management," said Story.

'CMBS Subordination Levels: Too High, Too Low, or Just Right?' is available on the Fitch Ratings web site at 'www.fitchratings.com'.