Just like Flo Rida remade that “Right Round” song from the 80s (above)… S&P has gone full circle on commercial mortgage-backed debt:

Standard & Poor’s backtracked on ratings cuts issued last week and raised the ranking on commercial mortgage-backed debt from three bonds sold in 2007.

The securities, restored to top-ranked status, had been downgraded as recently as last week, making them ineligible for the Federal Reserve’s Term Asset-Backed Securities Loan Facility to jumpstart lending.

S&P lowered the ratings on a class of a commercial mortgage-backed bond offering from AAA to BBB-, the lowest investment-grade ranking, on July 14. The New York-based rating company reversed the cut today, S&P said in a statement. In a related report, S&P said it adjusted assumptions on the timing of projected losses on the mortgages.

From AAA to BBB- (junk) to AAA again? Wow, quite a trip. One issue making the dizzying roundabout: the A2, A3 and A-AB classes in Goldman Sach’s 2007-GG10 transaction, considered a benchmark for CMBS, back to AAA from BBB-minus. Why do we care? Because this market would die in a fire without the government backstopping it, and they won’t backstop junk (at least not yet, give ‘em time):

Debt rated below AAA isn’t eligible for the Federal Reserve’s TALF. Investors sought $668.9 million in loans from the Fed to purchase so-called legacy commercial mortgage-backed bonds on July 16, the first monthly deadline to finance the purchase of the securities.

LoLo and I discussed the commercial real estate market recently and our conclusion: “Eddie Bauer isn’t being liquidated! Hoorah! Commercial REITs are saved! For the next six months, anyway.”

Interestingly, also,  Bernanke weighed in on commercial RE over the last couple days. He sounded less than enthused:

Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.

Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that “some have suggested” the commercial market “may even dwarf the residential mortgage problems” in the U.S.

Perhaps the same people who called up S&P and asked them to make their valuation model a little bit rosier should call Ben up and ask him not to say stuff like this.