Approximately $815.7 Million of Structured Securities Affected
New York, January 28, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of four classes
and affirmed 12 classes of Bear Stearns Commercial Mortgage Securities
Trust, Commercial Mortgage Pass-Through Certificates,
Series 2004-PWR4 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 21, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jul 21, 2004 Assigned Aaa (sf)
Cl. X, Affirmed at Aaa (sf); previously on Jul 21,
2004 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aa2 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Aa2 (sf)
Cl. C, Affirmed at Aa3 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Aa3 (sf)
Cl. D, Affirmed at A2 (sf); previously on Jul 21,
2004 Definitive Rating Assigned A2 (sf)
Cl. E, Affirmed at A3 (sf); previously on Jul 21,
2004 Definitive Rating Assigned A3 (sf)
Cl. F, Affirmed at Baa1 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Baa1 (sf)
Cl. G, Affirmed at Baa2 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Baa2 (sf)
Cl. H, Affirmed at Baa3 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Baa3 (sf)
Cl. J, Affirmed at Ba1 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Ba1 (sf)
Cl. K, Affirmed at Ba2 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Ba2 (sf)
Cl. L, Downgraded to B2 (sf); previously on Jul 21,
2004 Definitive Rating Assigned Ba3 (sf)
Cl. M, Downgraded to Caa1 (sf); previously on Aug 27,
2009 Downgraded to B2 (sf)
Cl. N, Downgraded to Caa3 (sf); previously on Aug 27,
2009 Downgraded to B3 (sf)
Cl. P, Downgraded to Ca (sf); previously on Aug 27,
2009 Downgraded to Caa1 (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 current ratings.
Moody's rating action reflects a cumulative base expected loss of 2.0%
of the current balance. At last review, Moody's cumulative
base expected loss was 1.2%. Moody's stressed scenario
loss is 5% 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 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 "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
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 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 underlying rating 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 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 August 27, 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 11, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 14% to $823.3
million from $954.9 million at securitization. The
Certificates are collateralized by 72 mortgage loans ranging in size from
less than 1% to 16% of the pool, with the top ten
loans representing 55% of the pool. The pool includes two
loans with investment grade credit estimates, representing 26%
of the pool. Eight loans, representing 14% of the
pool, have defeased and are collateralized with U.S.
Government securities.
Sixteen loans, representing 20% 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 trust since securitization,
resulting in a $3.1 million loss on only one of the loans
(54% loss severity). Currently only one loan, the
Payson Village Shopping Center Loan ($9.7 million --
1.2% of the pool) is in special servicing. The loan
was transferred to special servicing in November 2009 for payment default.
Moody's has estimated a $4.1 million loss (43% expected
loss on average) for this loan based on a January 2010 appraisal.
Moody's has assumed a high default probability for four poorly performing
loans representing 3% of the pool. Moody's has estimated
a $3.4 million loss (15% expected loss based on a
50% probability default) from the troubled loans.
Moody's was provided with full year 2009 operating results for 97%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV for the conduit component is 88% compared
to 92% at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 13% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.4%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs for the conduit component are 1.42X and 1.25X,
respectively, compared to 1.41X and 1.21X 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.
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 23
compared to 25 at Moody's prior review.
The largest loan with a credit estimate is the Shell Plaza Loan ($128.6
million -- 15.6% of the pool), which is secured
by a 1.8 million square foot (SF) Class A office complex located
in downtown Houston, Texas. The major tenants are Shell Oil
Company (Moody's senior unsecured rating Aa2 - stable outlook;
69% of the net rentable area (NRA); lease expiration December
2015) and Baker Botts (16% of the NRA; lease expiration December
2027). As of December 2009 the property was 97% leased,
which is the same as at last review. The loan sponsor is Hines
Sumisei U.S. Core Office Fund, a partnership between
Hines and Sumitomo Life Realty, a subsidiary of Sumitomo Life.
Performance has been stable. Moody's credit estimate and stressed
DSCR are Aaa and 2.38X, respectively, which is the
same as at last review.
The second loan with a credit estimate is the GIC Office Portfolio Loan
($82.9 million -- 10.1% of the pool),
which represents a 12% pari passu interest in a $683.6
million first mortgage loan. The loan is secured by 12 office properties
totaling 6.4 million SF and located in seven states. The
highest geographic concentrations are Chicago (39% of the NRA),
suburban Philadelphia (17% of the NRA) and San Francisco (12%
of the NRA). As of January 2010, the portfolio was 87%
leased compared to 91% at last review. The portfolio's performance
has declined since last review due to decreased rental revenues and increased
expenses. The loan matures in January 2014. Moody's credit
estimate and stressed DSCR are Baa3 and 1.45X, respectively,
compared to Baa2 and 1.44X at last review.
The top three performing conduit loans represent 15% of the pool.
The largest loan is the 40 Landsdowne Street Loan ($50 million
-- 6.1% of the pool), which is secured by a 215,000
SF Class A office/biotechnology building located in an industrial park
that abuts the main campus of the Massachusetts Institute of Technology
in Cambridge, Massachusetts. The property is 100%
leased to Millennium Pharmaceuticals, Inc. through July 2020.
The loan was structured with a 25-year amortization schedule and
has amortized by approximately 4% since last review. Moody's
LTV and stressed DSCR are 73% and 1.47X, respectively,
compared to 79% and 1.35X, at last review.
The second largest loan is the One North State Street Loan ($39.6
million -- 4.8 % of the pool), which is secured
by a 168,000 SF retail condominium unit situated in a 675,000
SF mixed use property located in downtown Chicago, Illinois.
The property was 97% leased as of September 2010, compared
to 100% at last review. Major tenants include TJ Maxx (42%
of the NRA; lease expiration January 2012) and Filene's Basement
(34% of the NRA; lease expiration January 2012). The
loan is on the servicer's watchlist due to the bankruptcy of Filene's
Basement. Filene's filed Chapter 11 bankruptcy in May 2009 but
did not include this store in its list of store closings. The property's
performance has improved since last review, however, Moody's
analysis incorporates a stressed cash flow reflecting a potential increase
in vacancy due to tenant rollover. Moody's LTV and stressed DSCR
108% and 1.00X, respectively, compared to 116%
and 0.93X at last review.
The third largest loan is the Alexandria East Coast Portfolio Loan ($33.8
million -- 4.1% of the pool), which is secured
by five office buildings located in Massachusetts, Pennsylvania
and New Jersey. The portfolio totals 205,000 SF and was 78%
leased as of September 2010 compared to 88% at last review.
Two properties are 100% vacant while the other three properties
are 100% leased. The loan is on the servicer's watchlist
due to vacancy. Moody's analysis incorporates a stressed cash flow
reflecting a potential increase in the portfolio's vacancy rate.
Moody's LTV and stressed DSCR 95% and 1.16X, respectively,
essentially the same as 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 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
Robert Gilbane
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 Four and Affirms 12 CMBS Classes of BSCMS 2004-PWR4
