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27 Sep 2002
MOODY'S DOWNGRADES ELEVEN AND CONFIRMS TWO SINGLE ASSET AND LARGE LOAN CMBS TRANSACTIONS CITING TERRORISM INSURANCE CONCERNS
Moody's Investors Service downgraded the ratings of all of the Aaa classes and some of the Aa classes of eleven commercial mortgage-backed transactions due to the lack of, or inadequacy of terrorism insurance, and the likelihood that these conditions will continue. Moody's had placed each of these classes' ratings on watch for possible downgrade on May 31, 2002, citing concerns about terrorism insurance coverage. Moody's also affirmed the Aa ratings of classes of two of these eleven transactions, and affirmed the Aaa ratings of classes of two other commercial mortgage-backed transactions that had also been put on watch for possible downgrade.
Over one year has passed since the terrorist attacks of September 11, 2001. In the interim, federal backstop legislation has been actively debated in the U.S. Congress, and separate bills have been passed by each of the House and the Senate. However, given the lack of conference committee deliberations, Moody's currently sees a low likelihood of emergence from Congress of a bill that would prompt greater availability of terrorism insurance.
The market for terrorism insurance remains highly dysfunctional, and we are not aware of any credible private market initiatives to remedy the situation. Moody's concurs with U.S. federal authorities who have repeatedly stated that terrorism is not a trivial risk and will remain so for the foreseeable future. As such, this level of risk, and the unpredictability of terrorism insurance availability to hedge this risk, is incompatible with the highest levels of Moody's ratings for certain CMBS transactions.
Owners of some of the properties securing the affected CMBS transactions have obtained limited terrorism insurance coverage, have increased building security, and have made structural improvements to help mitigate the effects of a terrorist attack. The differing downgrades from transaction to transaction reflect these nuances. Nevertheless, the commendable actions of some of the property owners cannot completely erase the risk of catastrophic loss that must be factored into the appropriateness of the high investment-grade ratings of Aaa and Aa.
The insurance policies that have been obtained typically have one or more limitations or weaknesses. These include:
· Coverage under a blanket policy that can include other high-risk assets, with relatively low aggregate annual claims limits.
· Policy carveouts for biological, chemical and radiological attacks.
· Named-perils coverage rather than all-risk terrorism coverage.
· Coverage for considerably less than the loan amount.
· Policies written by companies with low investment grade ratings or with no rating at all.
· Policies with 30 or 60 day cancellation clauses.
· Layers of insurance with differing coverage wording, allowing coverage "gaps."
The rating actions for single asset transactions range from an affirmation to a downgrade of three notches at the Aaa level and from affirmation to a one notch downgrade at the Aa level, reflecting these transactions' event-risk and volatility, and the high-profile nature of the collateral. The rating actions range from an affirmation to a one notch downgrade at the Aaa level for pooled transactions, reflecting the benefits of pooling and diversity in dampening volatility, notwithstanding that some assets in a pool may be relatively high-profile. The downgrade differences among the single asset deals resulted from consideration of the various factors described above (e.g., the quality or weaknesses of the insurance policies; any pro-active measures by the property owners) that Moody's identified in its investigation of each transaction. One of the original fourteen transactions watchlisted for downgrade, Banc of America Large Loan, Series 2001-1166, has paid off.
The ratings downgraded include:
280 Park Avenue Trust, Commercial Mortgage Pass-Through Certificates, Series 2001-XL280
-Class A-1, $31,712,339, Fixed, downgraded to Aa1 from Aaa
-Class A-2, $56,344,000, Fixed, downgraded to Aa1 from Aaa
-Class A-2F, $73,000,000, Floating, downgraded to Aa1from Aaa
-Class X-1, $265,861,666, Notional, downgraded to Aa1from Aaa
-Class B, $31,000,000, Fixed, downgraded to Aa3 from Aa2
1211 Avenue of the Americas Trust, Commercial Mortgage Pass-Through Certificates, Series 2000-1211
-Class A, $141,300,000, Fixed, downgraded to Aa1 from Aaa
-Class B, $45,000,000, Fixed, confirmed at Aa2
1251 Avenue of the Americas, Commercial Mortgage Pass-Through Certificates, Series 1999-XL1251
-Class A-1, $43,563,533, Fixed, downgraded to Aa2 from Aaa
-Class A-2, $188,000,000, Fixed, downgraded to Aa2 from Aaa
-Class X, $344,763,533, Notional, downgraded to Aa2 from Aaa
-Class B, $60,400,000, WAC, downgraded to Aa3 from Aa2
1345 Avenue of the Americas Trust, Commercial Mortgage Pass-Through Certificates, Series 2000-XL1345
-Class A-1, $40,032,888, WAC, downgraded to Aa1 from Aaa
-Class A-2, $233,365,781, WAC, downgraded to Aa1 from Aaa
-Class X, $443,398,669, Notional, downgraded to Aa1 from Aaa
-Class B, $50,900,000, WAC, downgraded to Aa3 from Aa2
Columbia Center Trust, Commercial Mortgage Pass-Through Securities, Series 2000-CCT
-Class A, $114,580,000, Floating, downgraded to Aa1 from Aaa
-Class B, $22,920,000, Floating, confirmed at Aa2
-Class X1, $195,000,000, Notional, downgraded to Aa1 from Aaa
COMM 2001-J2 Mortgage Trust, Commercial Mortgage Pass-Through Certificates
-Class A-1, $293,504,583, Fixed, downgraded to Aa1 from Aaa
-Class A-1F, $30,022,589, Floating, downgraded to Aa1 from Aaa
-Class A-2, $405,000,000, Fixed, downgraded to Aa1 from Aaa
-Class A-2F, $420,000,000 Floating, downgraded to Aa1 from Aaa
-Class X, $516,378,404, Notional, downgraded to Aa1 from Aaa
-Class XP, $542,798,911, Notional, downgraded to Aa1 from Aaa
-Class XC, $967,894,100, Notional, downgraded to Aa1 from Aaa
Four Times Square Trust, Commercial Mortgage Pass-Through Certificates, Series 2000-4TS
-Class A-1, $38,892,609, Fixed, downgraded to Aa3 from Aaa
-Class A-2, $233,000,000, Fixed, downgraded to Aa3 from Aaa
-Class X, $421,892,609, Notional, downgraded to Aa3 from Aaa
-Class B, $46,000,000, Fixed, downgraded to A1 from Aa2
GS Mortgage Securities Corporation II, Floating Rate Commercial Mortgage Pass-Through Trust, Series 2000-GSFL III
-Class A, $154,483,000, Floating, downgraded to Aa1 from Aaa
-Class X1, $291,185,000, Notional, downgraded to Aa1 from Aaa
-Class X2, $291,185,000, Notional, downgraded to Aa1 from Aaa
-Class XO, $291,068,526, Notional, downgraded to Aa1 from Aaa
GS Mortgage Securities Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 2001-1285
-Class A-1, $75,743,083, Fixed, downgraded to Aa1 from Aaa
-Class A-2, $168,000,000, Fixed, downgraded to Aa1 from Aaa
-Class X-1, $365,993,083, Notional, downgraded to Aa1 from Aaa
-Class B, $47,500,000, Fixed, downgraded to Aa3 from Aa2
GS Mortgage Trust II, Floating Rate Commercial Mortgage Pass-Through Trust, Series 2001-GSFL IV
-Class A, $189,609,149, Floating, confirmed at Aaa
-Class B, $14,731,660, Floating, confirmed at Aaa
-Class X-2, $231,973,702, Notional, confirmed at Aaa
GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates, Series 2001-ROCK
-Class A-1, $108,130,000, Fixed, downgraded to Aa2 from Aaa
-Class A-2, $492,470,000, Fixed, downgraded to Aa2 from Aaa
-Class A-2FL, $115,000,000, Variable, downgraded to Aa2 from Aaa
-Class X-1, $1,210,000,000, Notional, downgraded to Aa2 from Aaa
-Class X-2, $1,210,000,000, Notional, downgraded to Aa2 from Aaa
-Class B, $102,100,000, Fixed, downgraded to Aa3 from Aa2
-Class B-FL, $50,000,000, Variable, downgraded to Aa3 from Aa2
Host Marriott Pool Trust, Commercial Mortgage Pass-Through Certificates, Series 1999-HMT
-Class A, $164,137,868, Fixed, downgraded to Aa1 from Aaa
-Class B, $174,862,895, Fixed, downgraded to Aa1 from Aaa
Sun America Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 1999-C2B
-Class B-1, $7,500,000, Fixed, confirmed at Aa3
Moody's will continue to closely follow terrorism insurance developments at the federal and state levels and in the insurance and real estate industries. If federal legislation relating to terrorism insurance is passed and the response of the insurance industry to it is positive, or if a private sector initiative emerges that is helpful, Moody's will weigh these developments in any future rating actions of existing transactions and in the ratings of new transactions. Moody's will also consider any additional insurance or security programs put into place by the borrowers.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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