Approximately $217.4 Million of Structured Securities Affected
New York, April 22, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of six classes
of First Union Commercial Mortgage Securities, Inc.,
Commercial Mortgage Pass-Through Certificates, Series 1999-C1
as follows:
Cl. IO-1, Affirmed at Aaa (sf); previously on
Dec 22, 1998 Assigned Aaa (sf)
Cl C., Affirmed at Aaa (sf); previously on Oct 27,
2005 Upgraded to Aaa (sf)
Cl D., Affirmed at Aaa (sf); previously on Jan 24,
2007 Upgraded to Aaa (sf)
Cl E., Affirmed at Aaa (sf); previously on Sep 25,
2008 Upgraded to Aaa (sf)
Cl F., Affirmed at Baa1 (sf); previously on Dec 19,
2008 Upgraded to Baa1 (sf)
Cl G., Affirmed at Caa3 (sf); previously on Sep 22,
2010 Downgraded to Caa3 (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
10.0% of the current balance. At last review,
Moody's cumulative base expected loss was 7.9%.
Moody's stressed scenario loss is 14.4% 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.
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 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 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
on April 19, 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 on October 2, 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 8 compared
to 8 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 currently uses a Gaussian copula model to evaluate pools of credit
tenant loans (CTLs) within CMBS transactions. Moody's public CDO
rating model CDOROMv2.8-5 is used to generate a portfolio
loss distribution to assess the ratings. 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 September 22, 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
six months.
DEAL PERFORMANCE
As of the April 15, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 81% to $217.4
million from $1.16 billion at securitization. The
Certificates are collateralized by 71 mortgage loans ranging in size from
less than 1% to 9% of the pool, with the top ten non-defeased
loans representing 36% of the pool. Fourteen loans,
representing 24% of the pool, have defeased and are secured
by U.S. Government securities. Defeasance at last
review represented 23% of the pool. The pool also includes
a credit tenant lease (CTL) component which comprises 22% of the
pool.
Fourteen 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.
Thirty-three loans have been liquidated from the pool, resulting
in an aggregate realized loss of $17.35 million (15%
loss severity). Currently four loans, representing 11%
of the pool, are in special servicing. The largest specially
serviced loan is the Prince George Metro Center Loan ($20.0
million -- 9.2% of the pool), which is secured
by a 375,000 square foot office building located in Hyattsville,
Maryland. The property was 59% leased as of August 2010
and the borrower has been making partial debt service payments while trying
to work out a loan modification with the special servicer. If no
modification can be agreed upon, foreclosure will be the likely
outcome.
The remaining three specially serviced loans are secured by multifamily
properties. Moody's has estimated an aggregate $12.9
million loss (56% expected loss on average) for the specially serviced
loans.
Moody's was provided with full year 2009 operating results for 93%
of the pool (excluding defeased, specially serviced, and CTL
loans). Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 74% compared to 69%
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 9.8%.
Excluding special serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.29X and 1.63X, respectively,
compared to 1.36X and 1.64X 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 top three performing conduit loans represent 16% of the pool
balance. The largest loan is The Clarinbridge Loan ($17.5
million -- 8.0%), which is secured by a 306-unit
multifamily property located approximately 26 miles northwest of Atlanta
in Kennesaw, Georgia. The property was 97% leased
as of December 2010 compared to 92% at the last review.
Per the most recent rent roll, renewal rental rates at the property
have increased by $370/unit. Moody's LTV and stressed DSCR
are 70% and 1.34X, respectively, compared to
81% and 1.16X at the prior review.
The second largest loan is the New Brighton Manor Loan ($11.4
million -- 5.3%), which is secured by
a 300-bed skilled nursing home located in Staten Island,
New York. At the beginning of 2011, the borrower indicated
that the property was not generating sufficient income to pay operating
expenses and debt service and hired a bankruptcy lawyer to file bankruptcy.
The borrower decided to not pursue bankruptcy and has continued making
debt service payments. As of August 2010, the property was
95% leased with an actual DSCR of 0.93X. The loan
fully amortizes over its term and has amortized 42% since securitization.
Moody's LTV and stressed DSCR are 123% and 1.23X,
respectively, compared to 124% and 1.18X at last review.
The third largest loan is the Kelton Towers Loan ($6.8 million
-- 3.1%), which is secured by a 105-unit
multifamily property located in Westwood, California. The
property was 91% leased as of September 2010 compared to 89%
at the last review. In order to maintain its occupancy levels,
the borrower lowered rents to compete with existing product in the area.
Moody's LTV and stressed DSCR are 46% and 2.07X, respectively,
compared to 37% and 2.59X at last review.
The CTL component includes 24 loans secured by properties leased under
bondable leases. Moody's provides public ratings for 79%
of the CTL component and an internal view on the remainder of the CTL
loans. The largest exposures include Rite Aid Corp. (38%
of the CTL component, Moody's Long Term Corporate Family Rating
Caa2 -- stable outlook), Walgreen Co. (16%;
Moody's senior unsecured rating A2 -- stable outlook),
and CVS/Caremark (12%; Moody's senior unsecured rating Baa2
-- stable outlook).
New York
Amit Rustgi
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms Six CMBS Classes of FUCMT 1999-C1
