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Announcement:

MOODY'S COMMENTS ON GMAC COMMERCIAL MORTGAGE CORP.'S PASS THROUGH OF TERRORISM INSURANCE CLASS ACTION RELATED LEGAL FEES TO 90 MOODY'S RATED CMBS TRANSACTIONS

04 Aug 2005
MOODY'S COMMENTS ON GMAC COMMERCIAL MORTGAGE CORP.'S PASS THROUGH OF TERRORISM INSURANCE CLASS ACTION RELATED LEGAL FEES TO 90 MOODY'S RATED CMBS TRANSACTIONS

New York, August 04, 2005 -- In July, GMAC Commercial Mortgage Corp. ("GMACCM"), as master and/or primary servicer of 178 CMBS transactions that contained loans closed prior to September 11, 2001, passed through legal fees to each of the 178 trusts, including 90 trusts whose certificates are rated by Moody's. Each trust was charged $2,357. In transactions rated by Moody's, the pass through of the legal fees created interest shortfalls in 65 transactions' unrated classes of certificates, and in 18 transactions' below investment grade certificates, while 7 transactions had interest shortfalls in investment grade certificates. The investment grade certificates affected are listed below:

Citicorp Lease Pass-Through Trust 1999-1 (Class A-2 rated A3)

MSDWC 2001-FRMA (Class F rated Baa2)

CCMSC 2001-245 (Class F rated Baa3)

GSMS 2001-ROCK (Class G rated Aaa)

GSMS 2001-GL3A (Class E rated A3)

LLL 1997-LLI (Class F rated Baa3)

NEMLI 1993-1 (Class W rated Aaa)

The legal fees were incurred in the defense of a borrower's lawsuit instituted in 2002 in state court in Dallas, Texas against GMACCM as master servicer of GMAC Commercial Mortgage Securities, Inc., Commercial Mortgage Pass-Through Certificates, Series 1999-C2 (the "Transaction"), which transaction contained the borrower's loan. This borrower was disputing a $2,400 premium for terrorism insurance coverage that GMACCM procured under protest on the borrower's behalf. The borrower alleged that GMACCM wrongfully required it and others similarly situated (i.e., those who were CMBS borrowers of loans closed prior to September 11, 2001 and serviced by GMACCM) to purchase terrorism insurance coverage, and requested class action status on behalf of all those other borrowers. In June 2004, the borrower prevailed in the lower court, and was granted class action certification. GMACCM appealed and currently is awaiting the decision of the intermediate Texas appeals court.

While legal fees incurred prior to the lower court decision were absorbed by the Transaction trust, GMACCM allocated legal fees totaling $419,478 incurred after the lower court decision equally among the 178 transactions. GMACCM reasoned that after the lower court certification decision, each trust's borrowers effectively became class plaintiffs suing GMACCM for actions performed on behalf of that trust, therefore triggering standard indemnification language in each trust's servicing agreement for payment of the master servicer's legal fees. However, Moody's notes that Texas law provides that pending appeal of class action certifications, all trial court proceedings are stayed.

When Moody's has received appropriate prior notice of an interest shortfall, Moody's will put the ratings of transactions which are expected to experience such shortfalls for non-credit reasons on "review for possible downgrade", and will then remove the "review" status and fully restore the previous credit-based rating once the non-credit event has passed. Advance notice to Moody's gives an opportunity for the rating agency to discuss with the master servicer its proposed course of action, and to assess the strengths and weaknesses of its justifications for the proposed action.

Moody's is not planning at this juncture any rating actions relating to the legal fees already passed through to the non-Transaction trusts, as our ratings utilize an expected loss approach and the sums involved are small. However, if and as the litigation continues, Moody's may consider putting possibly affected certificates on review for possible downgrade, or may consider other actions depending on the particular circumstances that develop.

In future transactions, Moody's will be examining what structural modification may be called for to mitigate the effect on ratings of pass-throughs of extraordinary trust expenses. For single asset or rake transactions, we will be examining the need for a "buffer" class or reserve, even if the loan may be highly rated, for instance, to protect against charges for extraordinary trust expenses.

In addition, Moody's will discuss with master servicers faced with new or existing class action litigation whether it is possible to except certain trusts from a strict pro-rata sharing of litigation indemnity costs, such as trusts with fully-defeased, Aaa-rated certificates or those backed by bondable, credit tenant leases.

New York
Tad Philipp
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Daniel Rubock
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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