Approximately $1.5 Billion of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of ten pooled
and two non-pooled, or rake, classes and affirmed three
pooled classes of Morgan Stanley Capital I Inc., Commercial
Mortgage Pass-Through Certificates, Series 2007-XLF9.
Moody's rating action is as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Mar 19, 2009 Affirmed at Aaa (sf)
Cl. A-2, Affirmed at Aa3 (sf); previously on
Mar 19, 2009 Downgraded to Aa3 (sf)
Cl. B, Downgraded to A2 (sf); previously on Nov 11,
2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to A3 (sf); previously on Nov 11,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to Baa1 (sf); previously on Nov 11,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Baa2 (sf); previously on Nov 11,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Ba1 (sf); previously on Nov 11,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Ba3 (sf); previously on Nov 11,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to B2 (sf); previously on Nov 11,
2010 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Caa1 (sf); previously on Nov 11,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to Caa3 (sf); previously on Nov 11,
2010 B2 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Nov 11,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. X, Affirmed at Aaa (sf); previously on Mar 19,
2009 Affirmed at Aaa (sf)
Cl. M-RND, Downgraded to C (sf); previously on
Nov 11, 2010 B2 (sf) Placed Under Review for Possible Downgrade
Cl. N-RND, Downgraded to C (sf); previously on
Nov 11, 2010 B3 (sf) Placed Under Review for Possible Downgrade
The downgrades were due to the deterioration in performance of assets
in the trust, the significant concentration of loans secured by
hotel or casino properties (45% of the pooled balance), the
higher expected loss for the Reunion Land loan (2%) and the refinancing
risk associated with loans approaching maturity in an adverse environment.
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio and Moody's stressed debt service coverage ratio
(DSCR), remaining within acceptable ranges.
Moody's placed 12 classes on review for possible downgrade on November
11, 2010. This action concludes Moody's review.
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 2010 and 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 methodology used in these ratings was "CMBS: Moody's
Approach to Rating Large Loan/Single Borrower Transactions" published
in July 2000. In addition to methodologies and research available
on moodys.com, 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 Large
Loan Model v 8.0 which is used for both large loan and single borrower
transactions. 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. The model also incorporates a
supplementary tool to allow for the testing of the credit support at various
rating levels. The scenario or "blow-up" analysis tests
the credit support for a rating assuming that all loans in the pool default
with an average loss severity that is commensurate with the rating level
being tested. 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 19, 2009. The
previous review was part of Moody's first quarter 2009 ratings sweep and
incorporated assumptions for capitalization rates and stressed cash flows
that were outlined in "Rating Methodology Update: US CMBS Conduit
and Fusion Review Prompted by Declining Property Values and Rising Delinquencies"
dated February 5, 2009. 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 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.
As of the December 15, 2010 distribution date, the transaction's
certificate balance decreased by approximately 14% to $1.09
billion from $1.27 billion at securitization due to the
payoff of one loan and principal pay downs associated with five loans.
The Certificates are collateralized by 12 floating-rate loans ranging
in size from 2% to 35% of the pooled trust mortgage balance.
The largest three loans account for 61% of the pooled balance.
The pool has experienced $35,148 of losses to date.
There are currently two loans in special servicing (4% of pooled
balance) which are the Reunion Land loan (2%) and the Hyatt Place
Portfolio loan (2%). The Reunion Land Development loan ($22.5
million; 2% of the pooled trust balance) is secured by 438
acres of a 2,300 acre master planned community known as Reunion
Resort, located in Orlando, Florida. The loan was intended
to fund pre-development of the remaining land in a master plan
community to accommodate a mixed-use project encompassing condominiums,
hotel and commercial space. Development did not progress as expected.
The loan transferred into special servicing in August 2009 and is the
land is being marketed for sale. The loan collateral was appraised
in October 2009 for $4.2 million. Moody's credit
estimate is C, compared to Ba1 at last review. Non-pooled
Classes M-RND and N-RND are secured by the junior portion
of the Reunion Land Development loan.
Moody's weighed average pooled loan to value (LTV) ratio is 106%
compared to 96% at last review on March 19, 2009 and 66%
at securitization. Moody's pooled stressed DSCR is 1.30X,
compared to 1.04X at last review and 1.58X at securitization.
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. Large loan transactions generally
have a Herf of less than 20. The pool has a Herf of 6, the
same as last review.
The largest loan, MSREF Resort Portfolio ($381.5 million;
35% of the pooled trust balance) is secured by a portfolio comprised
of three resort hotels totaling 2,532 rooms. Two of the properties,
JW Marriott Grand Lakes and the Ritz-Carlton Grand Lakes,
are located in Orlando, Florida on the same 325 acre grounds and
represent 57% of the loan by allocated balance. The third
property, the JW Marriott Desert Ridge is located in Phoenix,
Arizona and represents 43% of the loan by allocated balance.
Despite the relatively flat year to date Revenue per Available Room (RevPAR),
performance of Phoenix and Orlando as reported by Smith Travel Research,
the RevPAR for the portfolio has increased 12% for the Trailing
Twelve Month period ending June 2010. Similarly, the portfolio's
net cash flow has shown considerable improvement. Moody's pooled
LTV is 72% and stressed DSCR is 1.63X. Moody's current
credit estimate is Ba2, compared to B3 at last review.
The second largest pooled exposure is the 14 Wall Street Loan ($145.0
million; 13% of the pooled trust balance) which is secured
by a 37-story office building in downtown Manhattan directly across
the street from the New York Stock Exchange. The total collateral
square footage is 1,009,806 SF consisting of 985,106
SF of office space and 24,700 SF of retail space, which includes
an Equinox fitness club. Per the December 2010 rent roll,
the property was 75% leased, up from 64% at securitization.
Though the net cash flow for the property has increased, it has
not achieved the upside that was anticipated at securitization.
Moody's pooled LTV is 84% and stressed DSCR is 1.19X.
Moody's current credit estimate is Ba3, compared to Ba1 at last
The third largest loan is the 500 West Monroe loan ($140.0
million; 13% of the pooled trust balance), which is
secured by a 46-story, class A office building in Chicago's
West Loop office market. The property consists of 950,286
SF of office space and 13,533 SF of retail space and is located
one block from both the Ogilvie Transportation Center and Union Station.
The Property has the largest in-building parking structure in Chicago.
Per the September 2010 rent roll, the property was 68% occupied
down from 92% at securitization. The property's net
cash flow has deteriorated since securitization. Moody's pooled
LTV over 100% and stressed DSCR is 0.71X. Moody's
current credit estimate is C, compared to B1 at last review.
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
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Michael M. Gerdes
Senior Vice President
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades 12 and Affirms Three CMBS Classes of MSC 2007-XLF9
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