Approximately $77.5 Million of Structured Securities Affected
New York, May 30, 2013 -- Moody's Investors Service (Moody's) affirmed the ratings of six classes,
downgraded one class and upgraded two classes of GE Commercial Mortgage
Corporation, Commercial Mortgage Pass-Through Certificates
2003-C1 as follows:
Cl. G, Upgraded to Aaa (sf); previously on Dec 9,
2010 Upgraded to A1 (sf)
Cl. H, Upgraded to Aaa (sf); previously on Dec 9,
2010 Confirmed at Baa1 (sf)
Cl. J, Affirmed Ba1 (sf); previously on Dec 9,
2010 Confirmed at Ba1 (sf)
Cl. K, Affirmed Ba2 (sf); previously on Dec 9,
2010 Confirmed at Ba2 (sf)
Cl. L, Affirmed Caa1 (sf); previously on Jun 7,
2012 Downgraded to Caa1 (sf)
Cl. M, Affirmed Caa2 (sf); previously on Jun 7,
2012 Downgraded to Caa2 (sf)
Cl. N, Affirmed C (sf); previously on Jun 7, 2012
Downgraded to C (sf)
Cl. O, Affirmed C (sf); previously on Jun 7, 2012
Downgraded to C (sf)
Cl. X-1, Downgraded to Caa1 (sf); previously
on Feb 22, 2012 Downgraded to Ba3 (sf)
RATINGS RATIONALE
The affirmations of the principal classes 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.
The upgrades of two principal classes are due to a significant increase
in credit support from paydowns and amortization. The pool has
paid down by 88% since last review.
The downgrade of the IO Class, Class X-1, is due to
the payoffs of highly rated classes since last review.
Moody's rating action reflects a base expected loss of 32.2%
of the current balance, compared to 4.1% at last review.
Although Moody's base expected loss has increased significantly
on a percentage basis, it has actually decreased in dollar amount
from $27.1 million to $25.2 million.
Moody's expected base loss plus aggregate realized loss is now 4.0%
of the original securitized pool compared to 3.7% at last
review. Moody's provides a current list of base 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 growth in
the current macroeconomic environment given the weak pace of recovery
and commercial real estate property markets. Commercial real estate
property values are continuing to move in a modestly positive direction
along with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, a consistent upward
trend will not be evident until the volume of investment activity steadily
increases for a significant period, non-performing properties
are cleared from the pipeline, and fears of a Euro area recession
are abated.
The hotel sector is performing strongly with nine straight quarters of
growth and the multifamily sector continues to show increases in demand
with a growing renter base and declining home ownership. Recovery
in the office sector continues at a measured pace with minimal additions
to supply. However, office demand is closely tied to employment,
where growth remains slow and employers are considering decreases in the
leased space per employee. Also, primary urban markets are
outperforming secondary suburban markets. Performance in the retail
sector continues to be mixed with retail rents declining for the past
four years, weak demand for new space and lackluster sales driven
by internet sales growth. Across all property sectors, the
availability of debt capital continues to improve with robust securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates.
Moody's central global macroeconomic scenario calls for US GPD growth
for 2013 that is likely to remain close to 2% as the greater impetus
from the US private sector is likely to broadly offset the drag on activity
from more restrictive fiscal policy. Thereafter, we expect
the US economy to expand at a somewhat faster pace than is likely this
year, closer to its long-run average pace of growth.
Risks to our forecasts remain skewed to the downside despite recent positive
developments. Moody's believes that the three most immediate
risks are: i) the risk of a deeper than currently expected recession
in the euro area accompanied by deeper credit contraction, potentially
triggered by a further intensification of the sovereign debt crisis;
ii) slower-than-expected recovery in major emerging markets
following the recent slowdown; and iii) an escalation of geopolitical
tensions, resulting in adverse economic developments.
The 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. The methodology
used in rating Class X-1 was "Moody's Approach to Rating Structured
Finance Interest-Only Securities" published in February 2012.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.62 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 assessments is melded with the conduit model credit enhancement
into an overall model result. Fusion loan credit enhancement is
based on the credit assessment 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 assessment level,
is incorporated for loans with similar credit assessments in the same
transaction.
The conduit model includes an IO calculator, which uses the following
inputs to calculate the proposed IO rating based on the published methodology:
original and current bond ratings and credit assessments; original
and current bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type as defined in the
published methodology. The calculator then returns a calculated
IO rating based on both a target and mid-point. For example,
a target rating basis for a Baa3 (sf) rating is a 610 rating factor.
The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e.
the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf)
rating factor of 940). If the calculated IO rating factor is 700,
the CMBS IO calculator would provide both a Baa3 (sf) and Ba1 (sf) IO
indication for consideration by the rating committee. The Interest-Only
Methodology was used for the rating of Class X-1.
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 3 compared
to 37 at last 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 8.4 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.
Since over half of the pool is in special servicing, Moody's also
utilized a loss and recovery approach in rating this deal. In this
approach, Moody's determines a probability of default for each specially
serviced loan and determines a most probable loss given default based
on a review of broker's opinions of value (if available), other
information from the special servicer and available market data.
The loss given default for each loan also takes into consideration servicer
advances to date and estimated future advances and closing costs.
Translating the probability of default and loss given default into an
expected loss estimate, Moody's then applies the aggregate loss
from specially serviced loans to the most junior class(es) and the recovery
as a pay down of principal to the most senior class(es).
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 a review utilizing MOST®
(Moody's Surveillance Trends) Reports and a proprietary program that highlights
significant credit changes that have occurred in the last month as well
as cumulative changes since the last full transaction review. On
a periodic basis, Moody's also performs a full transaction
review that involves a rating committee and a press release. Moody's
prior transaction review is summarized in a press release dated June 7,
2012. 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 May 10, 2013 distribution date, the transaction's
aggregate certificate balance has decreased by 93% to $78.1
million from $1.2 billion at securitization. The
Certificates are collateralized by seven mortgage loans ranging in size
from 3% to 48% of the pool.
Currently, there are no loans on the master servicer's watchlist.
Seventeen loans have been liquidated from the pool since securitization
resulting in an aggregate $22.3 million loss (24%
loss severity on average). Five loans, representing 66%
of the pool, are in special servicing. The largest specially
serviced loan is the 801 Market Street Loan ($37.3 million
-- 48% of the pool), which is secured by a 370,000
square foot (SF) office condominium situated within a 1.0 million
SF office building located in the Market Street East office market of
Center City Philadelphia. The condominium includes part of the
basement, ground floor retail and all of floors seven through 13.
The office building was built in 1928 and renovated in 2002. This
loan transferred to Special Servicing due to the borrower being unable
to pay off the loan at the February 1, 2013 maturity date.
The GSA, occupying 41% of the NRA, will be vacating
the property at lease expiration on December 16, 2014. One
tenant occupying 20% of the NRA is due to expire within the next
seven months.
Moody's has estimated an aggregate $24.3 million loss
(47% expected loss) for the five specially serviced loans.
Moody's was provided with full year 2011 and partial year 2012 operating
results for 100% of the performing pool. Excluding specially
serviced loans, Moody's weighted average LTV is 80% compared
to 86% at last review. Moody's net cash flow reflects a
weighted average haircut of 10.9% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.3%.
Excluding specially serviced loans, Moody's actual and stressed
DSCRs are 1.23X and 1.15X, respectively, compared
to 1.32X and 1.26X, respectively, 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 two performing conduit loans represent 34% of the pool balance.
The largest conduit loan is the Links at Bentonville Loan ($17.7
million -- 23% of the pool), which is secured by a multifamily
complex consisting of 36 buildings encompassing a total of 432 units located
in Bentonville, Arkansas. The property is currently 98%
leased, the same as at last review. Moody's LTV and stressed
DSCR are 72% and 1.24X, respectively, compared
to 97% and 0.92X at last review.
The second conduit loan is the Shiloh Apartments Loan ($8.6
million -- 11% of the pool), which is secured by a 240-unit
multifamily property located in Fayetteville, Arkansas. Performance
has improved significantly over the past three years due to an increase
in occupancy. The property is currently 100% leased as of
December 2012 compared to 97% as of December 2011 and 65%
as of December 2010. Moody's LTV and stressed DSCR are 98%
and 0.97X, respectively, compared to 218% and
0.43X at last review.
REGULATORY DISCLOSURES
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.
In conducting surveillance of this credit, Moody's considered performance
data contained in servicer and remittance reports. Moody's obtains
servicer reports on this transaction on a periodic basis, at least
annually.
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.
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.
Dana Baranaskas
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 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 Six, Downgrades One and Upgrades Two CMBS Classes of GECMC 2003-C1
