Approximately $14.7 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of three classes
of SMA Finance Co. Inc. Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 1998-C1
Cl. F, Affirmed at Aa2 (sf); previously on Nov 8,
2007 Upgraded to Aa2 (sf)
Cl. G, Affirmed at Baa2 (sf); previously on Nov 8,
2007 Upgraded to Baa2 (sf)
Cl. X, Affirmed at Aaa (sf); previously on Mar 26,
1998 Assigned Aaa (sf)
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, Moody's stressed 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 1.4%
of the current balance. At last review, Moody's cumulative
base expected loss was 1.5%. Moody's stressed scenario
loss is 10.3% 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 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 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
The principal methodologies used in this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005 and "Moody's
Approach to Rating Large Loan/Single Borrower Transactions" published
in July 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 2,
the same as at Moody's prior full 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, 2009. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
As of the January 2011 distribution date, the transaction's aggregate
certificate balance has decreased by 91% to $19.3
million from $225.1 million at securitization. The
Certificates are collateralized by three mortgage loans ranging in size
from 3% to 65% of the pool. The pool does not contain
any defeased loans or loans with credit estimates.
One loan, representing 32% of the pool, is 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.
No loans have been liquidated from the pool since securitization.
Currently, there are no specially serviced or delinquent loans.
Moody's was provided with full year 2009 for 97% of the pool.
Moody's weighted average LTV is 64%, compared to 62%
at last full review. Moody's net cash flow reflects a weighted
average haircut of 28% to the most recently available net operating
income. Moody's value reflects a weighted average capitalization
rate of 8.7%.
Moody's actual and stressed DSCRs are 1.18X and 1.51X,
respectively, compared to 1.29X and 1.53X at last
full 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 largest loan is the Federal Express Loan ($12.5 million
-- 64.7%) which is secured by a 292,000 square
foot single tenant industrial building located in Atlanta, Georgia.
The property is 100% leased to the Federal Express Corporation
(Moody's senior unsecured rating Baa2, stable outlook) through October
2011. The tenant's lease is co-terminus with the respective
loan maturity. Property performance has been stable since securitization;
however, Moody's analysis reflects a decline in value due to weakening
of the Atlanta industrial market. As of the fourth quarter 2010,
the overall industrial vacancy rate was 19% compared to 15%
at last review. The property's current in-place rent
is above current market levels. Moody's value is based on
an anticipated reduction in rent upon the expiration of the Federal Express
lease. Moody's LTV and stressed DSCR are 71% and 1.30X,
respectively, compared to 64% and 1.43 at last review.
The second largest loan is the 3083 Jericho Loan ($6.2 million
-- 32.0%), which is secured by a 69,000
square foot retail center located in East Northport (Suffolk County),
New York. The property is 100% leased to Stop & Shop,
which subleased the premises to Circuit City (51% of GLA) and Bed
Bath & Beyond (49%). Circuit City subsequently vacated
the premises after the company declared bankruptcy in late 2008 and Bed
Bath & Beyond remains the sole tenant. Stop & Shop remains
responsible for payments until its lease expires in February 2016.
The loan is on the watchlist due to decreased occupancy from underwriting.
The loan is amortizing on a 300-month schedule maturing in May
2016 and has paid down 10% since last review. Moody's LTV
and stressed DSCR are 54% and 1.79X, respectively,
compared to 61% and 1.60 at last review.
The third largest loan is the North Avenue Building Partnership Loan ($642,651
-- 3.3%), which is secured by a 14,000
square foot single tenant retail property located in Maywood, Illinois.
The property is leased to Walgreen Co. (Moody's senior unsecured
rating A2, stable outlook) through March 2057. The loan is
fully amortizing on a 240-month schedule maturing in November 2017
and has paid down 16% since last review. Moody's LTV and
stressed DSCR are 35% and 2.97X, respectively,
compared to 41% and 2.53X 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 Three CMBS Classes of SMA 1998-C1
250 Greenwich Street
New York, NY 10007