Approximately $42.5 Million of Structured Securities Affected
New York, June 13, 2013 -- Moody's Investors Service (Moody's) downgraded the rating of one class
and affirmed five classes of Credit Suisse First Boston Mortgage Securities
Corp. Commercial Mortgage Pass-Through Certificates,
Series 2003-CK2 as follows:
Cl. J, Affirmed B1 (sf); previously on Feb 25,
2010 Downgraded to B1 (sf)
Cl. K, Affirmed Caa3 (sf); previously on Feb 25,
2010 Downgraded to Caa3 (sf)
Cl. L, Affirmed Ca (sf); previously on Feb 25,
2010 Downgraded to Ca (sf)
Cl. N, Affirmed C (sf); previously on Feb 25,
2010 Downgraded to C (sf)
Cl. O, Affirmed C (sf); previously on Feb 25,
2010 Downgraded to C (sf)
Cl. A-X, Downgraded to Caa3 (sf); previously
on Feb 22, 2012 Downgraded to Ba3 (sf)
RATINGS RATIONALE
The downgrade of the IO Class, Class A-X, is a result
of the decline in weighted average rating factor (WARF) of its referenced
classes as a result of the paydown of more highly rated classes.
The pool has paid down 87% since Moody's prior review.
The ratings of the principal classes are consistent with current Moody's
expected loss and thus are affimred. Depending on the timing of
loan payoffs and the severity and timing of losses from specially serviced
loans, the credit enhancement level for rated 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 rating action reflects a base expected loss of 52.2%
($29.7 million) of the current balance compared to 7.1%
($30.8 million) at the prior review. Realized losses
have increased from 1.4% of the original balance to 1.7%
since the prior review. Moody's base expected loss plus realized
losses is now 4.7% of the original pooled balance compared
to 4.5% at last review. Moody's provides a
current list of base losses for conduit and fusion CMBS transactions on
moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics.
Primary sources of assumption uncertainty are the extent of growth in
the current macroeconomic environment given the weak pace of recovery
in the commercial real estate property markets. Commercial real
estate property values are continuing to move in a modestly positive direction
along with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, a consistent upward
trend will not be evident until the volume of investment activity steadily
increases for a significant period, non-performing properties
are cleared from the pipeline, and fears of a Euro area recession
are abated.
The methodologies used in this rating were "Moody's Approach to
Rating U.S. CMBS Conduit Transactions" published in
September 2000, and "Moody's Approach to Rating CMBS Large Loan/Single
Borrower Transactions" published in July 2000. Please see the Credit
Policy page on www.moodys.com for a copy of these methodologies.
Since 79% of the pool is in special servicing, Moody's also
utilized a loss and recovery approach in rating this deal. In this
approach, Moody's determines a probability of default for each specially
serviced loan and determines a most probable loss given default based
on a review of broker's opinions of value (if available), other
information from the special servicer and available market data.
The loss given default for each loan also takes into consideration servicer
advances to date and estimated future advances and closing costs.
Translating the probability of default and loss given default into an
expected loss estimate, Moody's then applies the aggregate loss
from specially serviced loans to the most junior class(es) and the recovery
as a pay down of principal to the most senior class(es).
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.62 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 (sf) 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 (sf) 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 (sf) and B2 (sf), 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 assessments is melded with the conduit model credit enhancement
into an overall model result. Fusion loan credit enhancement is
based on the credit assessment 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 assessment level,
is incorporated for loans with similar credit assessments 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 4 compared
to 12 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 8.5 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 a review utilizing MOST®
(Moody's Surveillance Trends) Reports and a proprietary program that highlights
significant credit changes that have occurred in the last month as well
as cumulative changes since the last full transaction review. On
a periodic basis, Moody's also performs a full transaction
review that involves a rating committee and a press release. Moody's
prior transaction review is summarized in a press release dated September
21, 2012. Please see the ratings tab on the issuer / entity
page on moodys.com for the last rating action and the ratings history.
DEAL PERFORMANCE
As of the May 17, 2013 distribution date, the transaction's
aggregate certificate balance has decreased by 94% to $56.8
million from $988.2 million at securitization. The
Certificates are collateralized by nine mortgage loans ranging in size
from less than 1% to 42% of the pool. There are no
loans with credit assessments or loans secured by U.S. Government
securities.
Two loans, representing 13% 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.
Ten loans have been liquidated from the pool, resulting in an aggregate
realized loss of $16.6 million (26% loss severity
on average). Five loans, representing 79% of the pool,
are currently in special servicing. The largest specially serviced
loan is the Michigan Commercial Portfolio Loan ($23.8 million
-- 42.0% of the pool), which was originally secured
by a portfolio of 24 Class B office buildings and one retail buildings,
all located in and around Lansing, Michigan. The loan was
transferred to special servicing in May 2008 due to imminent monetary
default and is now real estate owned (REO). Eight of the initial
25 properties have sold for a total of approximately $5.7
million. Roughly $1.25 million is in suspense and
will be applied to pay down the principal with the rest of the proceeds
having been applied to pay servicer advances. As of April 2013,
the remaining properties were 76% leased.
The second largest specially serviced loan is the Abbotts Village Shopping
Center Loan ($9.4 million -- 16.5% of
the pool), which is secured by a 109,586 square foot (SF)
anchored shopping center located in Alpharetta, Georgia.
The loan was transferred to special servicing in August 2012 due to maturity
default. The trust took title in March 2013. The lease for
the anchor tenant, Publix, expires in February 2015.
Publix leases 51% of the net rentable area (NRA). The servicer
is negotiations for an early renewal of this tenant. As of October
2012, the property was 85% leased.
The third largest specially serviced loan is the South Monroe Commons
Shopping Center Loan ($4.4 million -- 7.7%
of the pool), which is secured by a 71,139 SF anchored shopping
center located in Tallahassee, Florida. The loan transferred
to special servicing in January 2013 due to maturity default. Borrower
has agreed to a forbearance agreement.
Moody's estimates an aggregate $29.1 million loss
for specially serviced loans (65% expected loss on average).
Moody's has not identified any troubled loans in this pool.
Moody's was provided with full year 2012 operating results for the
four conduit loans remaining in the pool. These loans represent
22% of the pool. Moody's weighted average conduit
LTV is 88% compared to 74% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 9%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.3%.
Moody's actual and stressed conduit DSCRs are 1.22X and 1.16X,
respectively, compared to 1.57X and 1.44X 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 conduit loans represent 19% of the pool. The
largest conduit loan is the Symmes Gate Station Loan ($4.2
million -- 7.4% of the pool), which is secured
by a 40,323 SF strip retail center located in Loveland, Ohio.
The loan is on the watchlist because it passed its anticipated repayment
date (ARD) of March 1, 2013. Final maturity for this loan
is March 1, 2033. As of March 2013, property was 83%
leased compared to 87% at last review. Moody's LTV
and stressed DSCR are 97% and 1.04X, respectively,
compared to 86% and 1.17X at last review.
The second largest conduit loan is the Walgreens -- West Jefferson
Loan ($3.5 million -- 6.1% of the pool),
which is secured by a 15,000 SF single tenant retail property 100%
leased by the Walgreen Co. (Senior Unsecured Rating Baa1,
Negative Outlook) until November 2061. The property is located
in Fort Wayne, Indiana. The loan passed its ARD of November
1, 2012 with a final maturity of November 1, 2032.
Moody's LTV and stressed DSCR are 91% and 1.13X,
respectively, compared to 86% and 1.20X at last review.
The third largest conduit loan is the Sav-On Drug Store --
Lancaster, CA Loan ($2.9 million -- 5.0%
of the pool), which is secured by a 20,251 SF retail building
located in Lancaster, CA. As of March 2013, property
was 75% leased with CVS/Caremark (Senior Unsecured Rating Baa2,
Positive Outlook) as the only tenant. The loan is on the watchlist
due to low occupancy which has remained the same since 2010. The
loan passed its ARD of January 1, 2013 with a final maturity of
January 1, 2033. Moody's LTV and stressed DSCR are
86% and 1.17X, respectively, compared to 92%
and 1.08X at last review.
REGULATORY DISCLOSURES
Moody's did not receive or take into account a third-party
assessment on the due diligence performed regarding the underlying assets
or financial instruments related to the monitoring of this transaction
in the past six months.
In conducting surveillance of this credit, Moody's considered performance
data contained in servicer and remittance reports. Moody's obtains
servicer reports on this transaction on a periodic basis, at least
annually.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Randy Goldstein
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Keith Banhazl
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades One and Affirms Five CMBS Classes of CSFB 2003-CK2
