Approximately $1.866 Billion of Structured Securities Affected
New York, February 09, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of eight classes
and affirmed 14 classes of Credit Suisse Commercial Mortgage Trust Commercial
Securities Pass-Through Certificates, Series 2006-C3
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-AB, Affirmed at Aaa (sf); previously on
Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-1-A, Affirmed at Aaa (sf); previously
on Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-X, Affirmed at Aaa (sf); previously on
Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-M, Affirmed at Aaa (sf); previously on
Jul 6, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-J, Affirmed at A2 (sf); previously on Dec
10, 2009 Downgraded to A2 (sf)
Cl. B, Affirmed at Baa2 (sf); previously on Dec 10,
2009 Downgraded to Baa2 (sf)
Cl. C, Affirmed at Baa3 (sf); previously on Dec 10,
2009 Downgraded to Baa3 (sf)
Cl. D, Affirmed at Ba2 (sf); previously on Dec 10,
2009 Downgraded to Ba2 (sf)
Cl. E, Affirmed at B1 (sf); previously on Dec 10,
2009 Downgraded to B1 (sf)
Cl. F, Downgraded to Caa1 (sf); previously on Dec 10,
2009 Downgraded to B3 (sf)
Cl. G, Downgraded to Caa2 (sf); previously on Dec 10,
2009 Downgraded to Caa1 (sf)
Cl. H, Downgraded to Ca (sf); previously on Dec 10,
2009 Downgraded to Caa3 (sf)
Cl. J, Downgraded to C (sf); previously on Dec 10,
2009 Downgraded to Ca (sf)
Cl. K, Downgraded to C (sf); previously on Dec 10,
2009 Downgraded to Ca (sf)
Cl. L, Downgraded to C (sf); previously on Dec 10,
2009 Downgraded to Ca (sf)
Cl. M, Downgraded to C (sf); previously on Dec 10,
2009 Downgraded to Ca (sf)
Cl. N, Downgraded to C (sf); previously on Dec 10,
2009 Downgraded to Ca (sf)
Cl. O, Affirmed at C (sf); previously on Dec 10,
2009 Downgraded to C (sf)
Cl. P, Affirmed at C (sf); previously on Dec 10,
2009 Downgraded to C (sf)
RATINGS RATIONALE
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans. 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 rating.
Moody's rating action reflects a cumulative base expected loss of
6.6% of the current balance. At last review,
Moody's cumulative base expected loss was 6.2%.
Moody's stressed scenario loss is 25% 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 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 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 methodologies used in this rating were "CMBS: Moody's
Approach to Conduit Transactions" published in September 2000 and "Moody's
Approach to Rating Large Loan/Single Borrower Transactions" published
in July 2000.
In addition to methodologies and research, 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 16
compared to 23 at Moody's prior review.
In cases where the Herf falls below 20, Moody's also employs the
large loan/single borrower methodology. This methodology uses the
excel based Large Loan Model v 8.0 and then reconciles and weights
the results from the two models in formulating a rating recommendation.
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 December 9, 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 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 January 18, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 3% to $1.886
billion from $1.934 billion at securitization. The
Certificates are collateralized by 155 mortgage loans ranging in size
from less than 1% to 19% of the pool, with the top
ten loans representing 55% of the pool. There are no loans
that have defeased or loans that support investment grade credit estimates.
Thirty-eight loans, representing 16% 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.
Two loans have been liquidated from the pool since securitization,
resulting in an aggregate $7.1 million loss (69%
loss severity on average). The pool had experienced no losses at
Moody's last review. Fifteen loans, representing 8%
of the pool, are currently in special servicing. The largest
specially serviced loan is the 1900 Market Street Loan ($63.12
million --3.3% of the pool), which is secured
by a 457,000 square foot (SF) office property located in downtown
Philadelphia, Pennsylvania. The loan was transferred to special
servicing in October 2010 due to imminent payment default. Currently
a major tenant representing 33% of the net rentable area (NRA)
is in negotiations with the sponsor for an early termination on a portion
of its space. The scheduled lease expiration is October 2021.
If the early space termination is permitted, total occupancy will
decrease by 12%.
The remaining 14 specially serviced loans are secured by a mix of property
types. The master servicer has recognized an aggregate $34.8
million appraisal reduction for 12 of the specially serviced loans.
Moody's has estimated an aggregate $60 million loss (41%
expected loss on average) for all of the specially serviced loans.
Moody's has assumed a high default probability for five poorly performing
loans representing 2% of the pool and has estimated a $6.6
million loss (20% expected loss based on a 50% probability
default) from these troubled loans. Moody's rating action
recognizes potential uncertainty around the timing and magnitude of loss
from these troubled loans.
Moody's was provided with full year 2009 operating results for 92%
of the pool and partial year 2010 financials for 81% of the pool.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 111% compared to 116% at last review.
Moody's net cash flow reflects a weighted average haircut of 12.6%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.5%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.28X and 0.96X, respectively,
compared to 1.31X and 0.95X 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 three performing conduit loans represent 39% of the pool
balance. The largest loan is the 770 Broadway Loan ($353
million -- 18.7% of the pool), which is secured
by a 1.0 million SF Class A office building located in New York
City. The property was 100% leased as of September 2010,
the same as at last review. Major tenants include the Nielsen Company
(29% of the NRA; lease expiration May 2015), AOL LLC
(22% of the NRA; lease expiration February 2023), and
J. Crew Group (18% of the NRA; lease expiration October
2012). The loan sponsor is Vornado and the property's performance
has remained stable. The loan is interest only for the entire term.
Moody's LTV and stressed DSCR are 101% and 0.94X,
respectively, compared to 108% and 0.88X, at
last review.
The second largest loan is the Babcock and Brown FX 2 Loan ($197.9
million -- 10.5% of the pool), which is secured
by 17 multifamily properties located in six states. The properties
are located in Texas, Missouri, North Carolina, Georgia,
Florida and Virginia. The portfolio's occupancy as of June 2010
was 92% compared to 88% at last review. At last review
the property was in special servicing as a result of payment default but
the loan was subsequently transferred back to the master servicer.
Moody's LTV and stressed DSCR are 125% and 0.82X,
respectively, compared 139% and 0.74X at last review.
The third largest loan is the 535 and 545 Fifth Avenue Loan ($177
million -- 9.4% of the pool), which is secured
by two adjacent office/retail buildings totaling 498,000 SF located
in midtown Manhattan, New York. The property was 89%
leased as of December 2009 compared to 88% at last review.
Performance has increased significantly due to increased rental revenues.
Moody's LTV and stressed DSCR are 109% and 0.90X respectively,
compared to 141% and 0.69X 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, confidential and proprietary Moody's investors
Service information and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose 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
Lacey Morgan
Associate 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 Downgrades Eight and Affirms 14 CMBS Classes of CSMC 2006-C3
