Approximately $17.7 Million of Structured Securities Affected
New York, March 09, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of three classes
of DLJ Commercial Mortgage Corp., Commercial Mortgage Pass-Through
Certificates, Series 1999-CG3 as follows:
Cl. B-4, Affirmed at Ca (sf); previously on Dec
10, 2009 Downgraded to Ca (sf)
Cl. B-7, Affirmed at C (sf); previously on Dec
10, 2009 Downgraded to C (sf)
Cl. S, Affirmed at Aaa (sf); previously on Oct 12,
1999 Definitive Rating Assigned Aaa (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
the existing rating.
Moody's rating action reflects a cumulative base expected loss of
34.4% of the current balance. At last review,
Moody's cumulative base expected loss was 32.3%.
Moody's stressed scenario loss is 35.6% 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 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 Conduit Transactions" published in September 2000 and "Moody's
Approach to Rating Large Loan/Single Borrower Transactions" published
on July 2000.
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 pay down 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
underlying ratings 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 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 8 compared
to 21 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 December 10, 2009.
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 February 10, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 94% to $54.8
million from $899.3 million at securitization. The
Certificates are collateralized by 15 mortgage loans ranging in size from
less than 1% to 13% of the pool, with the top ten
loans representing 91% of the pool. Two loans representing
9% of the pool have defeased and are collateralized with U.S.
Government securities. Defeasance at last review represented 5%
of the pool. There are no loans with credit estimates.
Four loans, representing 15% 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-one loans have been liquidated from the pool since securitization,
resulting in an aggregate $29.2 million loss (22%
loss severity on average). At last review the pool had experienced
$22.2 million of losses. Seven loans, representing
59% of the pool, are currently in special servicing.
The largest specially serviced loan is the Wyndham Garden Oklahoma City
Loan ($7.3 million --13.2% of the pool),
formerly known as the Holiday Inn-Oklahoma City. The loan
is secured by a 246-unit hotel property located in Oklahoma City,
Oklahoma. The loan was transferred to special servicing in July
2009 for imminent maturity default. The special servicer has approved
a one year forbearance agreement that matures in October 2011.
The second largest specially serviced loan is the Olympic Corporate Center
Building ($6.9 million --12.7% of the
pool), which is secured by an 89,000 square foot (SF) office
building located in Erlanger, Kentucky. The loan was transferred
to special servicing in May 2009 due to imminent maturity default.
Since then the loan has become Real Estate Owned (REO) via a foreclosure
on December 12, 2010. In November 2010 the master servicer
recognized a $2.5 million appraisal reduction for this loan.
The third largest specially serviced loan is the Rolling Meadows Plaza
Loan ($6.8 million --12.5% of the pool),
which is secured by a 128,500 SF retail property located in Rolling
Meadows, Illinois. The loan was transferred to special servicing
in October 2009 due to payment maturity default. In January 2011
the master servicer recognized a $5.2 million appraisal
reduction on this property.
The remaining four specially serviced loans are secured by retail and
multifamily properties. The master servicer has recognized an aggregate
$10.6 million appraisal reduction for five of the specially
serviced loans. Moody's has estimated an aggregate $17.3
million loss (54% expected loss on average) for all of the specially
serviced loans.
Moody's has assumed a high default probability for two poorly performing
loans representing 10% of the pool and has estimated a $1.4
million loss (25% expected loss based on a 50% probability
default) from these troubled loans. Moody's rating action
recognizes potential uncertainty around the timing and magnitude of loss
from these troubled loans.
Excluding defeased, specially serviced and troubled loans there
are four conduit loans remaining in the conduit pool. Moody's
was provided with full year 2009 operating results for 100% of
the conduit pool and partial year 2010 financials for 89% of the
conduit pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 72% compared to 70%
at last review. Moody's net cash flow reflects a weighted
average haircut of 10.4% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.2%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.06X and 1.46X, respectively,
compared to 1.30X and 1.57X 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 25% of the pool
balance. The largest loan is The Regency Apartments Loan ($7.2
million -- 13.1% of the pool), which is secured
by a 186-unit multifamily property located in Fayetteville,
North Carolina. As of September 2010 the property was 97%
leased. Moody's LTV and stressed DSCR are 73% and 1.33X,
respectively, compared 70% and 1.39X at last review.
The second largest loan is the Majestic Shopping Center Loan ($4.5
million -- 8.2% of the pool), which is secured
by a 136,183 SF retail property located in Hampton, Michigan.
The property was 75% leased as of January 2011 and is currently
on the watchlist due to a decline in occupancy. Moody's LTV and
stressed DSCR are 89% and 1.15X, respectively,
compared 75% and 1.37X at last review.
The third largest loan is the Kaiser Permanente Office Building Loan ($2.1
million -- 3.8% of the pool), which is secured
by a 31,300 SF office property located in Anaheim, California.
The loan has benefited from amortization. Moody's LTV and stressed
DSCR are 46% and 2.36X respectively, compared to 61%
and 1.78X at last review.
New York
Lacey Morgan
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Keith Banhazl
Vice President - Senior Analyst
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 Three CMBS Classes of DLJCM 1999-CG3
