Approximately $593.4 Million of Structured Securities Affected
New York, January 26, 2012 -- Moody's Investors Service (Moody's) affirmed the ratings of 15 classes
of J.P. Morgan Chase Commercial Mortgage Securities Corp.,
Commercial Mortgage Pass-Through Certificates, Series 2003-ML1
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jul 24, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 24, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Jun 29,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Jul 9,
2007 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Jul 10,
2007 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Sep 25,
2008 Upgraded to Aaa (sf)
Cl. F, Affirmed at Aa1 (sf); previously on Feb 3,
2011 Upgraded to Aa1 (sf)
Cl. G, Affirmed at A1 (sf); previously on Feb 3,
2011 Upgraded to A1 (sf)
Cl. H, Affirmed at Baa2 (sf); previously on Feb 3,
2011 Upgraded to Baa2 (sf)
Cl. J, Affirmed at Ba2 (sf); previously on Jul 24,
2003 Definitive Rating Assigned Ba2 (sf)
Cl. K, Affirmed at Ba3 (sf); previously on Jul 24,
2003 Definitive Rating Assigned Ba3 (sf)
Cl. L, Affirmed at B1 (sf); previously on Jul 24,
2003 Definitive Rating Assigned B1 (sf)
Cl. M, Affirmed at B2 (sf); previously on Jul 24,
2003 Definitive Rating Assigned B2 (sf)
Cl. N, Affirmed at B3 (sf); previously on Jul 24,
2003 Definitive Rating Assigned B3 (sf)
Cl. X-1, Affirmed at Aaa (sf); previously on
Jul 24, 2003 Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed debt service coverage
ratio (DSCR) and the Herfindahl Index (Herf), remaining within acceptable
ranges. Based on our current base expected loss, the credit
enhancement levels for the affirmed classes are sufficient to maintain
their current ratings.
Moody's rating action reflects a cumulative base expected loss of
1.8% of the current balance. At last review,
Moody's cumulative base expected loss was 1.6%.
Moody's provides a current list of base and stress scenario losses
for conduit and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics.
Primary sources of assumption uncertainty are the extent of the slowdown
in growth in the current macroeconomic environment and the commercial
real estate property markets. While commercial real estate property
markets are gaining momentum, a consistent upward trend will not
be evident until the volume of transactions increases, distressed
properties are cleared from the pipeline and job creation rebounds.
The hotel and multifamily sectors are in recovery and improvements in
the office sector continue, with fundamentals in Gateway cities
outperforming their suburban counterparts. However, office
demand is closely tied to employment, where fundamentals remain
weak, so significant improvement may be delayed. Performance
in the retail sector has been mixed with on-going rent deflation
and leasing challenges. Across all property sectors, the
availability of debt capital continues to improve with monetary policy
expected to remain supportive and interest rate hikes postponed.
Moody's central global macroeconomic scenario reflects an overall downward
revision of forecasts since last quarter, amidst ongoing fiscal
consolidation efforts, household and banking sector deleveraging,
persistently high unemployment levels, and weak housing markets
that will continue to constrain growth.
The principal methodology used in this rating was "Moody's
Approach to Rating Fusion U.S. CMBS Transactions"
published in April 2005. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Moody's noted that on November 22, 2011, it released
a Request for Comment, in which the rating agency has requested
market feedback on potential changes to its rating methodology for Interest-Only
Securities. If the revised methodology is implemented as proposed
the rating on J.P. Morgan Chase Commercial Mortgage Securities
Corp., Commercial Mortgage Pass-Through Certificates,
Series 2003-ML1 Class X1 may be negatively affected. Please
refer to Moody's request for Comment, titled "Proposal
Changing the Global Rating Methodology for Structured Finance Interest-Only
Securities," for further details regarding the implications
of the proposed methodology change on Moody's rating. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology and the Request for Comment.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.60 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 (sf) level are driven
by property type, Moody's actual and stressed DSCR,
and Moody's property quality grade (which reflects the capitalization
rate used by Moody's to estimate Moody's value). Conduit
model results at the B2 (sf) level are driven by a paydown analysis based
on the individual loan level Moody's LTV ratio. Moody's
Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 (sf) and B2 (sf), the remaining conduit
classes are either interpolated between these two data points or determined
based on a multiple or ratio of either of these two data points.
For fusion deals, the credit enhancement for loans with investment-grade
credit estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the underlying rating of the loan which corresponds to a range of credit
enhancement levels. Actual fusion credit enhancement levels are
selected based on loan level diversity, pool leverage and other
concentrations and correlations within the pool. Negative pooling,
or adding credit enhancement at the underlying rating level, is
incorporated for loans with similar credit estimates in the same transaction.
Moody's ratings are determined by a committee process that considers
both quantitative and qualitative factors. Therefore, the
rating outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full review
is summarized in a press release dated February 3, 2011.
Please see the ratings tab on the issuer / entity page on moodys.com
for the last rating action and the ratings history.
DEAL PERFORMANCE
As of the January 12, 2012 distribution date, the transaction's
aggregate certificate balance has decreased by 35% to $602.2
million from $929.8 million at securitization. The
Certificates are collateralized by 104 mortgage loans ranging in size
from less than 1% to 8% of the pool, with the top
ten loans representing 23% of the pool. The pool contains
one loan with an investment grade credit estimate that represents 7%
of the pool. Nineteen loans, representing 28% of the
pool, have defeased and are collateralized with U.S.
Government securities.
Sixteen loans, representing 14% of the pool, are on
the master servicer's watchlist. The watchlist includes loans
which meet certain portfolio review guidelines established as part of
the CRE Finance Council (CREFC) monthly reporting package. As part
of our ongoing monitoring of a transaction, Moody's reviews the
watchlist to assess which loans have material issues that could impact
performance.
Six loans have been liquidated from the pool, resulting in an aggregate
realized loss of $6.4 million (26% loss severity
overall). Two loans, representing 2% of the pool,
are currently in special servicing.
Moody's has assumed a high default probability for five poorly performing
loans representing 3% of the pool and has estimated a $2.5
million aggregate loss (15% expected loss based on a 50%
probability default) from these troubled loans.
Moody's was provided with full year 2010 and partial year 2011 operating
results for 89% and 75% of the pool's non-defeased
and non-specially serviced loans, respectively. Excluding
specially serviced and troubled loans, Moody's weighted average
LTV is 75% compared to 77% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 11%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.4%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.48X and 1.56X, respectively,
compared to 1.79X and 1.65X at last review. Moody's
actual DSCR is based on Moody's net cash flow (NCF) and the loan's
actual debt service. Moody's stressed DSCR is based on Moody's
NCF and a 9.25% stressed rate applied to the loan balance.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 35
compared to 39 at Moody's prior review.
The loan with a credit estimate is the Hyatt Regency Hotel Loan Loan ($44.1
million -- 7.3%), which is secured by
a 686-room full service hotel with 53,000 square feet (SF)
of flexible function space located in Arlington, Virginia.
The property's operating performance has been stable. The
loan is amortizing on a 360-month schedule and is scheduled to
mature in January 2013. Moody's current credit estimate and stressed
DSCR are Aa2 and 3.20X, respectively, compared to Aa3
and 2.95X at last full review.
The top three performing conduit loans represent 10% of the pool
balance. The largest conduit loan is the JANAF Shopping Center
Loan ($29.8 million -- 5.0%
of the pool), which is secured by a 583,000 SF retail center
located in Norfolk, Virginia. The collateral comprises a
retail center, two office buildings, an out-parcel
strip retail building and pad sites. The largest retail tenants
include Sports Authority (7% of the net rentable area (NRA);
lease expiration August 2016), TJ Maxx (6% of the NRA;
lease expiration January 2014), and Conway (6% of the NRA;
lease expiration May 2012). The loan is amortizing on a 300-month
schedule and is scheduled to mature in May 2012. Moody's LTV and
stressed DSCR are 65% and 1.62X, respectively,
compared to 77% and 1.36X at last review.
The second largest conduit loan is the 4820 Overland Avenue Loan ($17.4
million -- 2.9% of the pool), which
is secured by a two-story office building and a single-story
research and development (R&D) building totaling 158,585 SF
located in Kearny Mesa, California. Originally, the
property was 100% leased to Overland Data, Inc. through
February 2014. However, the tenant has amended the lease
to remove the entire office building and 6,950 SF of the R&D
building from its leasehold interest. Overland Data maintains its
lease on 91,300 SF of R&D space. Northrop-Grumman
Systems Corporation now leases the space vacated by Overland Date through
June and November 2015. The loan is amortizing on a 360-month
schedule and is scheduled to mature in August 2014. Moody's LTV
and stressed DSCR are 77% and 1.38X, respectively,
compared to 74% and 1.43X at last full review.
The third conduit largest loan is the Hershey Heritage Village Loan ($14.2
million -- 2.4% of the pool), which
is secured by a 517-unit multifamily property located in Lancaster,
Pennsylvania. The property was 100% leased as of May 2011
compared to 95% at last review. Property performance is
stable. Moody's LTV and stressed DSCR are 68% and 1.52X,
respectively, compared to 65% and 1.58X at last full
review.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 31 January
2012. ESMA may extend the use of credit ratings for regulatory
purposes in the European Community for three additional months,
until 30 April 2012, if ESMA decides that exceptional circumstances
arise that may imply potential market disruption or financial instability.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Raymond Flores
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael M. Gerdes
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms 15 CMBS Classes of JPMCC 2003-ML1
