Approximately $138.8 Million of Structured Securities Affected
New York, February 24, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of four classes
of NationsLink Funding Corporation, Commercial Loan Pass-Through
Certificates, Series 1999-LTL-1 as follows:
Cl. X, Affirmed at Aaa (sf); previously on Mar 11,
1999 Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Mar 11, 1999 Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Jan 18,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed at A1 (sf); previously on Jan 18,
2007 Upgraded to A1 (sf)
The affirmations are due to key parameters, including Moody's 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
Moody's rating action reflects a cumulative base expected loss of 6.2%
of the current balance. At last review, Moody's cumulative
base expected loss was 7.3%. Moody's stressed scenario
loss is 11.0% of the current balance. 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.
Due to the high level of credit subordination, it is unlikely that
investment grade classes would be downgraded even if losses are higher
than Moody's expected base.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these expectations.
Performance that falls outside an acceptable range of the key parameters
may indicate that the collateral's credit quality is stronger or weaker
than Moody's had anticipated during the current review. Even so,
deviation from the expected range will not necessarily result in a rating
action. There may be mitigating or offsetting factors to an improvement
or decline in collateral performance, such as increased subordination
levels due to amortization and loan payoffs or a decline in subordination
due to realized losses.
Primary sources of assumption uncertainty are the current sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011 The hotel and multifamily sectors are continuing to show
signs of recovery, while recovery in the office and retail sectors
will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005,
"CMBS: Moody's Approach to Rating Large Loan/Single Borrower Transactions"
published in July 2000, and "CMBS: Moody's Approach to Rating
Credit Tenant Lease (CTL) Backed Transactions" published in October 1998.
Moody's review incorporated the use of the Excel-based CMBS Conduit
Model v 2.50 which is used for both conduit and fusion transactions.
Conduit model results at the Aa2 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 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 and B2, 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 credit estimate 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 credit estimate level, is incorporated
for loans with similar credit estimates in the same transaction.
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 6 compared
to 7 at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs also the
large loan/single borrower methodology. This methodology uses the
excel-based Large Loan Model v 8.0. The large loan
model derives credit enhancement levels based on an aggregation of adjusted
loan level proceeds derived from Moody's loan level LTV ratios.
Major adjustments to determining proceeds include leverage, loan
structure, property type, and sponsorship. These aggregated
proceeds are then further adjusted for any pooling benefits associated
with loan level diversity, other concentrations and correlations.
For deals that include a pool of credit tenant loans, Moody's currently
uses a Gaussian copula model, incorporated in its public CDO rating
model CDOROMv2.6 to generate a portfolio loss distribution to derive
credit enhancement levels for CTL component. Under Moody's CTL
approach, the rating of a transaction's certificates is primarily
based on the senior unsecured debt rating (or the corporate family rating)
of the tenant, usually an investment grade rated company,
leasing the real estate collateral supporting the bonds. This tenant's
credit rating is the key factor in determining the probability of default
on the underlying lease. The lease generally is "bondable",
which means it is an absolute net lease, yielding fixed rent paid
to the trust through a lock-box, sufficient under all circumstances
to pay in full all interest and principal of the loan. The leased
property should be owned by a bankruptcy-remote, special
purpose borrower, which grants a first lien mortgage and assignment
of rents to the securitization trust. The dark value of the collateral,
which assumes the property is vacant or "dark", is then examined
to determine a recovery rate upon a loan's default. Moody's also
considers the overall structure and legal integrity of the 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 April 1, 2009. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
As of the January 24, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 62% to $186.9
million from $492.5 million at securitization. The
Certificates are collateralized by 97 mortgage loans ranging in size from
less than 1% to 12% of the pool. The pool consists
of a CTL component, representing 76% of the pool, a
conduit component, representing 10% of the pool and a loan
with an credit estimate, representing 12% of the pool.
One loan, representing 2% of the pool, has defeased
and is secured by U.S. Government securities.
Thirteen loans, representing 12% 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.
Two loans have been liquidated from the pool, resulting in an aggregate
realized loss of $1.2 million (22% loss severity
on average). No loans are currently in special servicing.
The CTL component consists of 85 loans ($141.4 million --
75.7%) secured by properties leased to 25 tenants under
bondable leases. The largest exposures are Rite Aid Corporation
(Moody's senior unsecured rating Caa3/Ca -- stable outlook;
21% of the CTL component) and Home Depot Inc. (Moody's senior
unsecured rating Baa1 -- stable outlook; 15% of the CTL
Credits representing approximately 81% of the CTL exposure are
publicly rated by Moody's. Moody's has upgraded the ratings of
six credits and downgraded the ratings of five credits since the prior
review of this transaction in April 2009. The bottom-dollar
weighted average rating factor (WARF) for the CTL component has improved
to 2,299 compared to 2,563 at last review. WARF is
a measure of the overall quality of a pool of diverse credits.
The bottom-dollar WARF is a measure of the default probability
within the pool.
The conduit component consists of ten fixed rate mortgage loans.
Moody's was provided with full year 2009 operating results for 96%
of the conduit pool and credit estimate. Moody's weighted average
LTV is 62% compared to 63% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 15%
to the most recently available net operating income. Moody's value
reflects a weighted average capitalization rate of 10.3%.
Moody's actual and stressed DSCRs are 1.34X and 2.26X,
respectively, compared to 1.41X and 2.11X 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
The loan with credit estimate is the Broadway at the Beach Loan ($22.8
million -- 12.2%), which is secured by a 450,000
square foot tourist entertainment complex located in Myrtle Beach,
South Carolina. The property includes specialty shops, restaurants
and tourist attractions. The complex was 98% leased as of
year-end 2009 compared to 100% at last review. Property
performance has been stable since last review. The loan is fully
amortizing on a 240-month schedule and has paid down by approximately
17% since last review. Moody's credit estimate and stressed
DSCR are Aa1 and 3.55X, respectively, compared to Aa1
and 2.76X at last review.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Affirms Four CMBS Classes of NationsLink 1999-LTL-1
250 Greenwich Street
New York, NY 10007