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TALF and Ratings - Get Out Your Cash!

Here's the latest gloom and doom piece -- perhaps warranted, too -- this time in the Journal. The point? It is great that the government finally got on the darn bandwagon by including CMBS and commercial properties in TALF, but that's just not enough.

Now, if we are going to have all this bailout money in the first place (we will not get into the philosophical or practical arguments of how to repay all this debt) including the commercial sector is important in my opinion. But, as the story points out, only top-rated debt is eligible. And S&P is telling us that it may downgrade a boatload of properties, thus rendering them ineligible for TALF money.

A lot of people blame the ratings agencies for getting us into this mess in the first place by rating deals AAA that had no business being so. And now when they want to clean up the mess by downgrading these deals, it could create another, even larger, problem. Jeez.

The moral? Owners are going to either have to pony up equity to stay in their deals, bring in mezz lenders who could make a killing with liquidity, have a fire sale, do a deal with the special servicer, walk away or...well, you get the picture. Not a pretty one. With LTVs on loans going down and property values declining, this could be the era of the capital call.