Approximately $530.1 Million of Structured Securities Affected
New York, November 04, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of five classes
and affirmed six classes of Salomon Brothers Commercial Mortgage Trust
2001-C1, Commercial Mortgage Pass-Through Certificates,
Series 2001-C1 as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on
Jan 3, 2002 Assigned Aaa (sf)
Cl. X, Affirmed at Aaa (sf); previously on Jul 31,
2001 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Dec 13,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aa1 (sf); previously on Dec 13,
2006 Upgraded to Aa1 (sf)
Cl. D, Affirmed at Aa2 (sf); previously on Dec 13,
2006 Upgraded to Aa2 (sf)
Cl. E, Downgraded to A3 (sf); previously on Dec 13,
2006 Upgraded to A1 (sf)
Cl. F, Downgraded to Ba1 (sf); previously on Dec 13,
2006 Upgraded to Baa1 (sf)
Cl. G, Downgraded to Ca (sf); previously on Oct 1,
2009 Downgraded to Ba3 (sf)
Cl. H, Downgraded to C (sf); previously on Oct 1,
2009 Downgraded to Caa1 (sf)
Cl. J, Downgraded to C (sf); previously on Oct 1,
2009 Downgraded to Ca (sf)
Cl. K, Affirmed at C (sf); previously on Oct 1,
2009 Downgraded to C (sf)
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans and concerns about refinancing risk associated with loans approaching
maturity in an adverse environment. Eighty-two loans,
representing 68% of the pool, mature within the next six
months. Seventeen of these loans, representing 15%
of the pool, have a Moody's stressed debt service coverage
ratio (DSCR) less than 1.0X.
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed 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
8.8% of the current balance. At last review,
Moody's cumulative base expected loss was 5.6%.
Moody's stressed scenario loss is 10.7% 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
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 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 these ratings was "CMBS:
Moody's Approach to Conduit Transactions" published in September 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. 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 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 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 credit estimate 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 57
compared to 73 at last 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 October 1, 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
As of the October 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 44% to $530.1
million from $952.7 million at securitization. The
Certificates are collateralized by 118 mortgage loans ranging in size
from less than 1% to 3% of the pool, with the top
ten loans representing 22% of the pool. Nineteen loans,
representing 20% of the pool, have defeased and are collateralized
with U.S. Government securities.
Thirty-two loans, representing 28% 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
Sixteen loans have been liquidated from the pool, resulting in an
aggregate realized loss of $38.9 million (37% loss
severity). These losses have resulted in 100% loss for Classes
L through P and a 41% principal loss for Class K. Twelve
loans, representing 10% of the pool, are currently
in special servicing. The largest specially serviced loan is Westford
Technology Park II Loan ($10.5 million -- 2.0%
of the pool), which is secured by a 105,000 square foot office
property located in Westford, Massachusetts. The loan was
transferred to speical servicing in July 2010 due to monetary default
but is current.
The remaining specially serviced loans are secured by a mix of property
types. The master servicer has recognized appraisal reductions
totaling $12.1 million for nine of the specially serviced
loans. Moody's has estimated an aggregate $28.3
million loss (55% expected loss on average) for the specially serviced
Moody's has assumed a high default probability for 11 poorly performing
loans representing 14% of the pool and has estimated a $12.7
million loss (17% expected loss based on a 55% probability
default) from these troubled loans.
Based on the most recent remittance statement, Classes J through
K have experienced cumulative interest shortfalls totaling $744,893.
Moody's anticipates that the pool will continue to experience interest
shortfalls because of the exposure to specially serviced loans.
Interest shortfalls are caused by special servicing fees, including
workout and liquidation fees, appraisal subordinate entitlement
reductions (ASERs) and extraordinary trust expenses.
Moody's was provided with full year 2009 operating results for 68%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 72% compared to 79%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 12% 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 1.43X and 1.54X, respectively,
compared to 1.34X and 1.42X 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 9% of the pool
balance. The largest loan is the Van Ness Post Centre Loan ($16.9
million -- 3.2% of the pool), which is secured
by a 109,000 square foot mixed use property and an adjacent 144-space
parking garage located in San Francisco, California. The
loan matures in May 2011. The loan is on the watchlist due to a
decrease in DSCR and low occupancy. Moody's LTV and stressed DSCR
are 109% and 1.01 X, respectively, compared
to 97% and 1.14X at last review.
The second largest loan is the Ironwood Apartments Loan ($15.3
million -- 2.9% of the pool), which is secured
by a 288-unit multifamily property located in Houston, Texas.
The property was 92% leased as of December 2009, the same
as last review. The loan is currently on the watchlist due to a
low DSCR. The loan matures in February 2011. Due to poor
performance, Moody's considers this loan to be a high default
risk and has identified it as a troubled loan. Moody's LTV
and stressed DSCR are 133% and 0.75X, respectively,
compared to 155% and 0.64X at last review.
The third largest loan is Union Square Marketplace Shopping Center Loan
($14.1 million -- 2.7% of the pool),
which is secured by a 189,000 square foot retail center located
approximately 20 miles southeast of Oakland in Union City, California.
The property was 96% leased as of December 2009, the same
as last review. The loan matures in January 2011. Moody's
LTV and stressed DSCR are 59% and 1.8X, respectively,
compared to 81% and 1.3X 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, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's Analytics'
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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades Five and Affirms Six CMBS Classes of SBM7 2001-C1
250 Greenwich Street
New York, NY 10007