Approximately $298.6 Million of Structured Securities Affected
New York, March 02, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 14 classes
of Washington Mutual Commercial Mortgage Pass-Through Certificates,
Series 2007-SL3 as follows:
Cl. O, Affirmed at C (sf); previously on Feb 25,
2010 Downgraded to C (sf)
Cl. A-J, Affirmed at A1 (sf); previously on Feb
25, 2010 Downgraded to A1 (sf)
Cl. B, Affirmed at A3 (sf); previously on Feb 25,
2010 Downgraded to A3 (sf)
Cl. C, Affirmed at Baa2 (sf); previously on Feb 25,
2010 Downgraded to Baa2 (sf)
Cl. D, Affirmed at Ba1 (sf); previously on Feb 25,
2010 Downgraded to Ba1 (sf)
Cl. E, Affirmed at Ba2 (sf); previously on Feb 25,
2010 Downgraded to Ba2 (sf)
Cl. F, Affirmed at B2 (sf); previously on Feb 25,
2010 Downgraded to B2 (sf)
Cl. G, Affirmed at B3 (sf); previously on Feb 25,
2010 Downgraded to B3 (sf)
Cl. H, Affirmed at Caa2 (sf); previously on Feb 25,
2010 Downgraded to Caa2 (sf)
Cl. J, Affirmed at Caa3 (sf); previously on Feb 25,
2010 Downgraded to Caa3 (sf)
Cl. K, Affirmed at Ca (sf); previously on Feb 25,
2010 Downgraded to Ca (sf)
Cl. L, Affirmed at C (sf); previously on Feb 25,
2010 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Feb 25,
2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Feb 25,
2010 Downgraded to C (sf)
RATINGS RATIONALE
Moody's rating action did not address the ratings of Classes A,
A-1A and X, which are all currently rated Aaa, on review
for possible downgrade. These classes were placed on review on
January 19, 2011. KeyCorp Real Estate Capital Markets,
Inc. (KREM) is the master servicer on this transaction and deposits
collection, escrow and other accounts in KeyBank, National
Association (KeyBank). Keybank no longer meets Moody's rating
criteria for an eligible depository account institution for Aaa and Aa1
rated securities. Moody's is reviewing arrangements that
Keybank has proposed, and that it may propose, to migrate
the incremental risk indicated by the lower rating of the depository account
institution, so as possible to allow classes on review to maintain
their current ratings.
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
6.4% of the current balance. At last review,
Moody's cumulative base expected loss was 5.9%.
Moody's stressed scenario loss is 16.6% 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 methodology used was "CMBS: Moody's Approach
to Small Balance Loan Transactions" published in December 2004.
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 302
compared to 319 at Moody's prior full review.
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 February 25, 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 February 23, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 10% to $1.16
billion from $1.28 billion at securitization.
This transaction is classified as a small balance CMBS transaction.
The Certificates are collateralized by 829 mortgage loans ranging in size
from less than 1% to 1.5% of the pool, with
the top ten loans representing 9% of the pool. The pool
is characterized by both geographic and property type concentration.
Approximately 68% of the pool is located in California and 49%
of the pool is secured by multi-family properties.
One hundred-seventy seven loans, representing 24%
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.
Twenty-nine loans have been liquidated from the pool since securitization,
resulting in an aggregate $13.97 million loss (43%
loss severity on average). Currently, there are 47 loans,
representing 5% of the pool in special servicing. The master
servicer has recognized appraisal reductions totaling $15.5
million for the specially serviced loans. Moody's has estimated
an aggregate $29.3 million loss (50% expected loss
on average) for the specially serviced loans.
Moody's has also assumed a high default probability for 87 poorly
performing loans, representing 11% of the pool, and
has estimated an aggregate $18.6 million loss (15%
expected loss based on a 50% probability default) for the troubled
loans.
Moody's was provided with full year 2009 operating results for 92%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 104% compared to 110%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 10% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.7%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.31X and 1.10X, respectively,
compared to 1.29X and 1.07X 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 9.2% stressed rate applied to the loan balance.
New York
Juan Acosta
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 the CMBS Ratings of WaMu 2007-SL3
