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Rating Action:

Moody's Assigns Provisional Ratings to Eight CMBS Classes of Extended Stay America Trust 2010-ESH

26 Oct 2010

Approximately $2.0 Billion of Structured Securities Affected

New York, October 26, 2010 -- Moody's Investors Service has assigned provisional to ratings eight class of CMBS securities, issued by Extended Stay America Trust 2010-ESH, Commercial Mortgage Pass-Through Certificates, Series 2010-ESH.

US$1200M Cl. A Certificate, Assigned (P)Aaa (sf)

Cl. XA-1 Certificate, Assigned (P)Aaa (sf)

Cl. XA-2 Certificate, Assigned (P)Aaa (sf)

Cl. XB-1 Certificate, Assigned (P)Baa2 (sf)

Cl. XB-2 Certificate, Assigned (P)Baa2 (sf)

US$245M Cl. B Certificate, Assigned (P)Aa2 (sf)

US$243M Cl. C Certificate, Assigned (P)A2 (sf)

US$312M Cl. D Certificate, Assigned (P)Baa2 (sf)

RATINGS RATIONALE

The Certificates are collateralized by a single loan backed by first lien commercial mortgage related to 664 extended-stay hotel properties. The ratings are based on the collateral and the structure of the transaction.

Moody's rating approach for securities backed by a single loan compares the credit risk inherent in the underlying properties with the credit protection offered by the structure. The structure's credit enhancement is quantified by the maximum deterioration in property value that the securities are able to withstand under various stress scenarios without causing an increase in the expected loss for various rating levels. In assigning single borrower ratings Moody's also considers a range of qualitative issues as well as the transaction's structural and legal aspects.

The credit risk of the loan is determined primarily by two factors: 1) Moody's assessment of the probability of default, which is largely driven by the DSCR, and 2) Moody's assessment of the severity of loss in the event of default, which is largely driven by the LTV of the underlying loan. Moody's Trust LTV Ratio is 59.5%, and has been assigned a credit estimate of Baa2 by Moody's. Moody's Total LTV ratio (inclusive of subordinated debt) of 80.0% is also considered when analyzing various stress scenarios for the rated debt. The Moody's Trust Stressed DSCR of 2.00X and Moody's Total Stressed DSCR (inclusive of subordinated debt) is 1.48X.

The loan is solely collateralized by extended-stay hotel properties that are cross-collateralized and cross-defaulted. In assessing the benefit due to "crossing" for this transaction, Moody's examined underlying diversity that resulted from asset pooling. Moody's considered the Herfindahl Score of the portfolio by allocated loan amounts, as well as the diversity of property locations given a single property type. The properties underlying the loan are geographically diverse and benefit from a Herfindahl score of 485.

However, lodging properties are more correlated than properties of other commercial real estate sectors. The pool's performance has tracked that of the lodging sector as a whole, with both having deteriorated dramatically since 4Q 2009. This decline is somewhat offset by the strong rebound in performance observed industry-wide over the last few quarters, which include improvement for the properties underlying this transaction.

The principal methodology used in rating the certificates in the transaction was "Moody's Approach to Rating Large Loan/Single Borrower Transactions" published on July 2000. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Moody's analysis employs the excel-based Large Loan Model v.8.0 which derives credit enhancement level based on an adjusted loan level proceeds derived from Moody's loan level LTV ratio. Major adjustments to determining proceeds include leverage, loan structure, property type, sponsorship and diversity.

The V Score for this transaction is assessed as Medium, the same as the V score assigned to the U.S. Single Borrower CMBS sector. This reflects typical volatility with respect to the critical assumptions used in the rating process as well as an average disclosure of securitization collateral and ongoing performance. Moody's believes that strong organizational documents at the SPE level serve as a significant deterrent against SPE bankruptcy filings, although certain provisions within these documents have not been tested in court.

Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings. V Scores apply to the entire transaction (rather than individual tranches).

Moody's Parameter Sensitivities: If Moody's value of the collateral used in determining the initial rating were decreased by 5%, 15%, or 25%, the model-indicated rating for the currently rated Aaa classes would be Aa1, Aa3, or A2, respectively. Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time; rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.

Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a neutral impact on the rating.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

Moody's considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The special reports, "Updated Report on V Scores and Parameter Sensitivities for Structured Finance Securities" and "V Scores and Parameter Sensitivities in the U.S. CMBS Sector" are available on moodys.com. Additional research, including the pre-sale report for this transaction and reports for prior transactions, are available at www.moodys.com. 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 adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Eun Jee Park
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Nick Levidy
MD - Structured Finance
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.

Moody's Assigns Provisional Ratings to Eight CMBS Classes of Extended Stay America Trust 2010-ESH
No Related Data.
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