Approximately $667.5 Million of Structured Securities Affected
New York, January 30, 2014 -- Moody's Investors Service affirmed the ratings of nine classes of Credit
Suisse First Boston Commercial Mortgage Pass-Through Certificates,
Series 2004-C3 as follows:
Cl. A-1-A, Affirmed Aaa (sf); previously
on Feb 14, 2013 Affirmed Aaa (sf)
Cl. A-5, Affirmed Aaa (sf); previously on Feb
14, 2013 Affirmed Aaa (sf)
Cl. B, Affirmed Baa2 (sf); previously on Feb 14,
2013 Downgraded to Baa2 (sf)
Cl. C, Affirmed Ba3 (sf); previously on Feb 14,
2013 Downgraded to Ba3 (sf)
Cl. D, Affirmed B3 (sf); previously on Feb 14,
2013 Downgraded to B3 (sf)
Cl. E, Affirmed Caa3 (sf); previously on Feb 14,
2013 Downgraded to Caa3 (sf)
Cl. F, Affirmed C (sf); previously on Feb 14,
2013 Downgraded to C (sf)
Cl. G, Affirmed C (sf); previously on Feb 14,
2013 Downgraded to C (sf)
Cl. A-X, Affirmed Ba3 (sf); previously on Feb
14, 2013 Affirmed Ba3 (sf)
RATINGS RATIONALE
The ratings of the investment grade P&I classes were affirmed because
the transaction's key metrics, including Moody's loan-to-value
(LTV) ratio, Moody's stressed debt service coverage ratio (DSCR)
and the transaction's Herfindahl Index (Herf), are within
acceptable ranges. The ratings on the below-investment grade
P&I classes are affirmed because they are consistent with Moody's
expected loss. The rating of the interest-only class was
affirmed based on the weighted average rating factor or WARF of the referenced
classes is consistent with Moody's expectations.
Moody's rating action reflects a base expected loss of approximately 7.8%
of the current deal balance compared to 6.3% at last review.
Since last review the pool has paid down by approximately 38%.
Moody's base expected loss plus realized loss is now 8.5%
compared to 9.4% at last review. Moody's provides
a current list of base losses for conduit and fusion CMBS transactions
on moodys.com at https://www.moodys.com/research/US-CMBS-ConduitFusion-Base-Expected-Loss-Excel-Data--PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration and an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodologies used in this rating were "Moody's Approach
to Rating U.S. CMBS Conduit Transactions" published
in September 2000 and "Moody's Approach to Rating CMBS Large
Loan/Single Borrower Transactions" published in July 2000.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model v
2.64, which it uses 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 Moody's uses
to estimate Moody's value). Conduit model results at the
B2 (sf) level are based on a paydown analysis using the individual loan-level
Moody's LTV ratio. Moody's may consider other concentrations
and correlations in its analysis. Based on the model pooled credit
enhancement levels of Aa2 (sf) and B2 (sf), the required credit
enhancement on 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, Moody's
merges the credit enhancement for loans with investment-grade credit
assessments with the conduit model credit enhancement for an overall model
result. Moody's incorporates negative pooling (adding credit
enhancement at the credit assessment level) for loans with similar credit
assessments in the same transaction.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 10
compared to 17 at Moody's last review.
In cases where the Herf falls below 20, Moody's uses the excel-based
Large Loan Model v8.6 and then reconciles and weights the results
from the Conduit and Large Loan models in formulating a rating recommendation.
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.
DEAL PERFORMANCE
As of the January 17, 2014 payment date, the transaction's
aggregate certificate balance has decreased by approximately 59%
to $667.5 million from $1.64 billion at securitization.
The Certificates are collateralized by 95 mortgage loans ranging in size
from less than 1% to 20% of the pool, with the top
ten loans representing approximately 45% of the pool. Seventeen
loans, representing 28% of the pool, have defeased
and are collateralized with U.S. Government Securities.
Thirty-four loans, representing 21% 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.
Twenty-four loans have been liquidated from the pool, resulting
in an aggregate realized loss of $87.3 million (48%
average loss severity). There are ten loans, representing
approximately 9% of the pool, that are currently in special
servicing. The largest specially serviced loan is the Tower at
Northwoods ($17.2 million -- 2.6% of
the pool), which is secured by an 185,000 square foot (SF)
office property in Danvers, Massachusetts. The loan was transferred
to special servicing in February 2009 and became REO effective May 2013.
The remaining specially serviced loans are secured by a mix of hospitality,
multi-family, office and retail properties. The master
servicer has recognized an aggregate $36.6 million in appraisal
reductions for nine of the specially serviced loans. The master
servicer has deemeed four loans as non-recoverable. Moody's
estimates an aggregate loss of $40.5 million (71%
loss severity) for the specially serviced loans.
Moody's has assumed a high default probability for four poorly performing
loan, representing approximately less than 1% of the pool.
Moody's has estimated an approximately $835,000 loss
(15.6% expected loss on a 50% probability of default)
from these troubled loans.
Moody's received full year 2012 and partial 2013 operating results for
99% and 70% of the pool, respectively. Moody's
weighted average conduit LTV is 93% compared to 89% at Moody's
prior review. Moody's conduit component excludes loans with
credit assessments, defeased and CTL loans and specially serviced
and troubled loans. Moody's net cash flow (NCF) reflects
a weighted average haircut of approximately 12% to the most recently
available net operating income (NOI). Moody's value reflects
a weighted average capitalization rate of 9.7%.
Moody's actual and stressed conduit DSCRs are 1.28X and 1.19X,
respectively, compared to 1.36X and 1.23X at prior
review. Moody's actual DSCR is based on Moody's 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.
The top three conduit loans represent approximately 31% of the
pool. The largest conduit loan is the Pacific Design Center Loan
($135.5 million -- 20% of the pool), which
is secured by a 961,000 SF office and design showroom building located
in West Hollywood, California. In addition to the showroom
and office space, the property also houses a 384-seat theater
and screening room, conference facilities, and a two-story
gallery leased to the Museum of Contemporary Art, a fitness facility
and two restaurants. As of November 2013, the property was
66% leased compared to 68% at last review. Financial
performance has continued to decline year over year. The sponsor
is Cohen Brothers Realty. Moody's LTV and stressed DSCR are 112%
and 0.97X, respectively, compared to 100% and
1.08X at last review.
The second largest conduit loan is the BC Wood Portfolio Loan ($38.6
million -- 5.8% of the pool), which is secured
by four shopping centers located in Louisville, Lexington and Paris,
Kentucky, all built between 1951 and 1989. Totaling approximately
893,000 SF, the weighted average occupancy for the portfolio,
as of December 2013, was 87% compared to 92% at last
review. Financial performance remains stable. The loan sponsor
is Brian C. Wood. Moody's LTV and stressed DSCR are 94%
and 1.13X, respectively, compared to 95% and
1.12X at last review.
The third largest conduit loan is the 615 Chestnut Street Loan ($33.1
million -- 5.0% of the pool), which is secured
by a 17-story, 376,000 SF office property in Philadelphia's
central business district. As of June 2013, the property
was 99% leased. The largest tenant is the US Attorney's
Office Eastern District of Pennsylvania, which leases 43%
of the net rentable area (NRA) through July 2019. Financial performance
remains stable. The loan sponsor is Norman Wolgin. Moody's
LTV and stressed DSCR are 73% and 1.41X, respectively,
compared to 74% and 1.4X at last review.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Juan F Acosta
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
Keith Banhazl
VP - Sr Credit Officer/Manager
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 Nine Classes of CSFB 2004-C3
