Approximately $202.9 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of seven classes
of N-45 First CMBS Issuer Corporation, Commercial Mortgage
Bonds, Series 2003-1 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jun 18, 2003 Definitive Rating Assigned Aaa (sf)
Cl. IO, Affirmed at Aaa (sf); previously on Jun 18,
2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Dec 21,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Mar 4,
2010 Upgraded to Aaa (sf)
Cl. D, Affirmed at A1 (sf); previously on Mar 4,
2010 Upgraded to A1 (sf)
Cl. E, Affirmed at Ba1 (sf); previously on Apr 11,
2008 Upgraded to Ba1 (sf)
Cl. F, Affirmed at B2 (sf); previously on Jun 18,
2003 Definitive Rating Assigned B2 (sf)
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
2.2% of the current balance. At last review,
Moody's cumulative base expected loss was 1.6%.
Moody's stressed scenario loss is 8.3% 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
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.
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 stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2011;
we expect overall a sluggish recovery in most of the world's largest
economies, returning to trend growth rate with elevated fiscal deficits
and persistent unemployment levels.
The principal methodologies used in rating and monitoring this transaction
is "Moody's Approach to Rating Canadian CMBS" published on
May 26, 2000 and "Moody's Approach to Rating Large Loan/Single Borrower
Transactions" published on July 7, 2000.
In addition, Moody's publishes a weekly summary of structured finance
credit, ratings and methodologies, available to all registered
users of our website, at www.moodys.com/SFQuickCheck.
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 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 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 5 compared
to 7 at Moody's prior review.
In cases where the Herf falls below 20, Moody's also employs
the large loan/single borrower methodology. This methodology uses
the excel-based Large Loan Model v 8.0 and then reconciles
and weights the results from the two 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.
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 March 4, 2010. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
As of the January 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 61% to $216.2
million from $559.7 million at securitization. The
Certificates are collateralized by 19 mortgage loans ranging in size from
less than 1% to 26% of the pool, with the top ten
loans representing 83% of the pool. The pool contains one
loan with an investment grade credit estimate that represents 21%
of the pool. One loan, representing 4% of the pool,
has defeased and is collateralized with Canadian Government securities.
Five loans, representing 13% 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
The pool has not realized any losses since securitization. Currently
there are no specially serviced or delinquent loans.
Moody's was provided with full year 2009 operating results for 100%
of the pool. Moody's weighted average LTV is 59% compared
to 54% at Moody's prior review. Moody's net
cash flow reflects a weighted average haircut of 24% to the most
recently available net operating income. Moody's value reflects
a weighted average capitalization rate of 9.6%.
Moody's actual and stressed DSCRs are 1.38X and 1.82X,
respectively, compared to 2.03X and 2.02X 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.
The loan with a credit estimate is the Place Dupuis Loan ($45.8
million -- 21%), which is secured by a 812,830
square foot office and retail complex located in Montreal, Quebec.
The property was 90% leased as of September 2010 compared to 98%
at last review. Hydro Quebec, the property's largest
tenant, did not renew leases on 70,680 square feet which expired
in April 2010. Hydro Quebec still occupies 60% of the net
rentable area (NRA) with leases expiring in 2012 through 2014.
Moody's analysis reflects a stressed cash flow due to the property's
increased vacancy. The loan is 100% recourse to the sponsor.
Moody's current credit estimate and stressed DSCR are Baa2 and 1.73X,
respectively, compared to Baa3 and 1.48X at last review.
The top three conduit loans represent 40% of the pool balance.
The largest loan is the State Street Financial Centre Loan ($56.1
million -- 26%), which is secured by a 413,937
square foot Class A office building located in Toronto, Ontario.
The property was 100% leased as of March 2010, similar to
last review. The property's performance has been stable.
Moody's LTV and stressed DSCR are 61% and 1.64X,
respectively, compared to 64% and 1.57X at last review.
The second largest loan is the Zellers Centre Loan ($15.3
million -- 7.1%), which is secured by a 1,092,673
square foot industrial complex located in Brampton, Ontario.
The property was 100% leased to the Hudson's Bay Company
through February 2013. Moody's LTV and stressed DSCR are
54% and 1.99X, respectively, compared to 53%
and 2.04X at last review.
The third largest loan is the 180 Duncan Mill Road Loan ($14.9
million -- 6.9%), which is secured by a 146,300
square foot office building located in Toronto, Ontario.
The property was 85% leased as of February 2011 compared to 100%
at last review. Property performance has declined since last review
due to decreased rental revenues. Moody's LTV and stressed
DSCR are 72% and 1.43X, respectively, compared
to 67% and 1.54X 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 Seven CMBS Classes of N-45 2003-1
250 Greenwich Street
New York, NY 10007