Approximately $24.4 Million of Structured Securities Affected
New York, March 09, 2011 -- Moody's Investors Service (Moody's) affirmed two classes of Asset Securitization
Corporation, Commercial Mortgage Pass-Through Certificates,
Series 1997-D4 as follows:
A-6, Affirmed at Aaa (sf); previously on May 11,
2006 Upgraded to Aaa (sf)
PS-1, Affirmed at Aaa (sf); previously on Mar 27,
1997 Assigned Aaa (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
the existing ratings.
Moody's rating action reflects a cumulative base expected loss of 4.5%
of the current balance. At last review, Moody's cumulative
base expected loss was 3.3%. Moody's stressed scenario
loss is 14.5% 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 Rating Conduit Transactions" published in September 2000 and
"CMBS: 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 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 3,
the same as at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs also the
large loan/single borrower methodology. This methodology uses the
excel-based Large Loan Model v 8.0. 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 May 20, 2010. 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 February 16, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 86% to $194.4
million from $1.40 billion at securitization. The
Certificates are collateralized by 27 mortgage loans ranging in size from
less than 1% to 24% of the pool, with the top three
non-defeased loans representing 48% of the pool.
Twelve loans, representing 41% of the pool, have defeased
and are secured by U.S. Government securities.
Two loans, representing 5% 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.
Nineteen loans have been liquidated from the pool since securitization,
resulting in an aggregate $26.4 million loss (18%
loss severity on average). Three loans, representing 4%
of the pool, are currently in special servicing. Moody's
has estimated an aggregate $1.7 million loss (20%
expected loss on average) for the specially serviced loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 99% and 95%, respectively, of the
pool's non-defeased loans. Excluding specially serviced
and troubled loans, Moody's weighted average LTV is 83% compared
to 81% at last review. Moody's net cash flow reflects a
weighted average haircut of 12% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 10.5%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.02X and 2.55X, respectively,
compared to 1.09X and 2.36X 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 two performing conduit loans represent 45% of the pool
balance. The largest loan is Kmart Distribution Center Loan ($47.1
million -- 24.2% of the pool), which is secured
by two warehouse/distribution centers totaling 2.8 million square
feet (SF). One property is located in Brighton, Colorado,
which is approximately 22 miles northeast of Denver and the second property
is located in Greensboro, North Carolina. The properties
are 100.0% leased to Kmart. Moody's LTV and stressed
DSCR are 66% and 1.64X, respectively, compared
to 70% and 1.53X at last review.
The second largest loan is Sunwest Portfolio Loan ($39.4
million -- 20.3%), which is secured by a portfolio
of unanchored retail facilities built between 1951 and 1990. The
centers, averaging 26,000 SF, are located throughout
the Midwest and Texas. As of September 2010, the properties
were 87.6% leased. Moody's LTV and stressed DSCR
are 121% and 0.94X, respectively, compared to
113% and 1.05X at last review.
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Affirms Two CMBS Classes of ASC 1997-D4
250 Greenwich Street
New York, NY 10007