Approximately $1.5 Billion of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of 13 pooled
classes and seven non-pooled, or rake, classes of J.P.
Morgan Chase Commercial Mortgage Securities Corp. Commercial Mortgage
Pass-Through Certificates, Series 2007-FL1.
Moody's rating action is as follows:
Cl. A-1, Downgraded to Aa1 (sf); previously on
Sep 29, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. X-2, Downgraded to Aa1 (sf); previously on
Sep 29, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. A-2, Downgraded to Baa1 (sf); previously
on Sep 29, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Baa2 (sf); previously on Sep 29,
2010 Aa3 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Baa3 (sf); previously on Sep 29,
2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to Ba1 (sf); previously on Sep 29,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to B1 (sf); previously on Sep 29,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to B2 (sf); previously on Sep 29,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa1 (sf); previously on Sep 29,
2010 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Caa3 (sf); previously on Sep 29,
2010 B1 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Ca (sf); previously on Sep 29,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to C (sf); previously on Sep 29,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Sep 29,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. RS-1, Downgraded to C (sf); previously on
Sep 29, 2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. RS-2, Downgraded to C (sf); previously on
Sep 29, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. RS-3, Downgraded to C (sf); previously on
Sep 29, 2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. RS-4, Downgraded to C (sf); previously on
Sep 29, 2010 Ca (sf) Placed Under Review for Possible Downgrade
Cl. RS-5, Downgraded to C (sf); previously on
Sep 29, 2010 Ca (sf) Placed Under Review for Possible Downgrade
Cl. RS-6, Downgraded to C (sf); previously on
Sep 29, 2010 Ca (sf) Placed Under Review for Possible Downgrade
Cl. RS-7, Downgraded to C (sf); previously on
Sep 29, 2010 Ca (sf) Placed Under Review for Possible Downgrade
RATINGS RATIONALE
The downgrades were due to the deterioration in the performance of the
assets in the trust, the significant concentration of loans secured
by hotel or casino properties (70% of the pooled balance),
the refinancing risk associated with loans approaching maturity in an
adverse environment and the modified pro-rata structure of principal
paydowns.
Moody's placed these classes on review for possible downgrade on September
29, 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
unemployment levels.
The principal methodology used in this rating was Moody's "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.
DEAL PERFORMANCE
As of the December 15, 2010 distribution date, the transaction's
certificate balance decreased by approximately 13% to $1.44
billion from $1.65 billion at securitization due to the
payoff of three loans and a principal pay down of one loan. The
Certificates are collateralized by 19 floating-rate loans ranging
in size from 1% to 16% of the pooled trust mortgage balance.
The largest three loans account for 41% of the pooled balance.
The deal has a modified pro-rata structure. Interest on
the pooled trust certificates are distributed first to A-1 and
X-2 pro rata, and then to Classes A-2, B,
C, D, E, F, G, H, J, K,
and L, sequentially. Prior to a monetary or material non-monetary
event of default, scheduled and unscheduled principal payments are
allocated to the Pooled Classes and junior participation interests on
a pro rata basis. Initially, 80% of the principal
received is paid to the Class A-1 and A-2 certificates sequentially
and 20% was allocated pro rata to the other certificates.
Principal distributions are made sequentially from the most senior to
the most junior class after the outstanding principal balance of the Pooled
Trust Assets (exclusive of Trust Assets related to Specially Service Mortgage
Loans) is less than 20% of the initial principal balance of the
Trust Assets. All losses and shortfalls will be allocated first
to the relevant junior interest, then to the Raked Classes,
and then to Classes L, K, J, H, G, F,
E, D, C, B, and A-2 in that order,
and then to Class A-1.
The pool has experienced $378,132 of losses to date.
Currently four loans are in special servicing (12% of pooled balance)
which are the Resorts International loan (8%), the Westin
Chicago North Shore loan (3%), the Sofitel Minneapolis loan
(1%) and the 321 Ellis loan (1%). All four specially
serviced loans are in various stages of or appear to be headed towards
foreclosure.
The Resorts International loan consists of a pooled balance of $120.2
million and a non-pooled balance of $87.7 million
which is secured by three hotel/casinos with a total of 1,242 rooms:
Atlantic City Hilton (Atlantic City, New Jersey), Bally's
Tunica (Robinsonville, Mississippi), and Resorts Tunica (Tunica,
Mississippi). In July 2009, the portfolio was transferred
to special servicing due to payment default. The portfolio's operating
performance has continued to deteriorate since securitization.
The loan collateral was appraised in August 2010 for $249 million.
Servicer advances total almost $5 million. Moody's anticipates
a loss on this loan. Non-pooled Classes RS-1,
RS-2, RS-3, RS-4, RS-5,
RS-6, and RS-7 are secured by the junior portion of
the Resorts International Portfolio Loan.
Moody's weighed average pooled loan to value (LTV) ratio is 108%
compared to 95% at last review on March 19, 2009 and 62%
at securitization. Moody's pooled stressed DSCR is 1.19X,
compared to 1.23X at last review and 1.86X 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 11 compared
to 12 at last review.
The largest loan in the pool is the Walden Galleria loan ($232.0
million, 16.1% of the pool balance), which is
secured by a dominant regional mall located in Buffalo, New York.
The 1.6 million square foot mall is anchored by JC Penney,
Macy's (anchor owned), Sears, Lord & Taylor (anchor owned),
Dick's Sporting Goods and Regal Cinemas. The mall is managed by
the Pyramid Company and collateral vacancy as of June 2010 was 14.7%,
up from 8.7% at securitization. The loan has extension
options through May 2012. Moody's current pooled LTV is 65%
and stressed DSCR is 1.36X. Moody's credit estimate is A3
compared to A1 at last review.
The second largest pooled exposure, the Marriott Waikiki loan ($194.4
million, 13.5%), is secured by a leasehold interest
in a 1,310 room full-service hotel known as The Marriott
Waikiki Beach Resort and Spa located in Honolulu, Hawaii.
RevPAR for the year to date period ending August 2010 was $136.52,
up 1.2% from RevPAR for the same period in 2009 of $134.86.
The Oahu hotel market has begun to show improved performance according
to Smith Travel Research. Moody's anticipates that RevPAR for this
hotel will increase in line with the Oahu hotel market. The loan
has extension options through May 2012. Moody's current pooled
LTV is 71% and stressed DSCR is 1.35X. Moody's credit
estimate is Ba1, the same as last review.
The third largest loan, the PHOV Portfolio loan ($171.3
million; 11.9%), is secured by 11 full-service
hotels with 3,025 guest rooms located in New Jersey (2 properties),
Louisiana (2 properties), Florida (2 properties), Illinois,
California (3 properties) and South Carolina. The portfolio's net
cash flow has not achieve Moody's original expectations at securitization.
The final extended maturity for the loan is May 2012. Moody's current
pooled LTV is over 100%. Moody's credit estimate is Caa3
compared to B3 at last review.
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 information.
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.
New York
Annelise Osborne
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Michael M. Gerdes
Senior Vice President
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 Downgrades 20 CMBS Classes of JPMCC 2007-FL1
