Approximately $228.7 Million of Structured Securities Affected
New York, September 22, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of one class
and affirmed five classes of First Union Commercial Mortgage Securities,
Inc., Commercial Mortgage Pass-Through Certificates,
Series 1999-C1 as follows:
IO-1 Certificate, Affirmed at Aaa (sf); previously on
Dec 22, 1998 Assigned Aaa (sf)
Cl C, Affirmed at Aaa (sf); previously on Oct 27, 2005
Upgraded to Aaa (sf)
Cl D, Affirmed at Aaa (sf); previously on Jan 24, 2007
Upgraded to Aaa (sf)
Cl E, Affirmed at Aaa (sf); previously on Sep 25, 2008
Upgraded to Aaa (sf)
CL F, Affirmed at Baa1 (sf); previously on Dec 19, 2008
Upgraded to Baa1 (sf)
CL G, Downgraded to Caa3 (sf); previously on Dec 4, 2003
Downgraded to B3 (sf)
The downgrade is 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. In addition, the pool
benefits from significant increases in credit subordination due to loan
payoffs and amortization. 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
7.9% of the current balance. At last review,
Moody's cumulative base expected loss was 3.0%.
Moody's stressed scenario loss is 10.5% 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
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 methodologies used in rating FUCMT 1999-C1 were "Moody's
Approach to Rating Large Loan/Single Borrower Transactions" published
in July 2000 and "CMBS: Moody's Approach to Rating Credit Tenant
Lease (CTL) Backed Transactions" published in October 1998. 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 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 employs the large loan/single borrower methodology in cases
where the Herf falls below 20. 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 currently uses a Gaussian copula model to evaluate pools of credit
tenant loans (CTLs) within CMBS transactions. Moody's public CDO
rating model CDOROMv2.6 is used to generate a portfolio loss distribution
to assess the credit enhancement levels for ratings. Under Moody's
CTL approach, the rating is primarily based on the senior unsecured
debt rating (or the corporate family rating) of the tenant leasing the
real estate collateral. This tenant's credit rating is the key
factor in determining the probability of default on the underlying lease.
The lease generally is "bondable", which means it is an absolute
net lease, yielding fixed rent paid to the trust through a lock-box,
sufficient under all circumstances to pay in full all interest and principal
of the loan. The leased property should be owned by a bankruptcy-remote,
special purpose borrower, which grants a first lien mortgage and
assignment of rents to the securitization trust. The dark value
of the collateral, which assumes the property, is vacant or
"dark", is then examined to determine a recovery rate upon a loan's
default. Moody's also considers the overall structure and legal
integrity of the transaction. Moody's reconciles and weights the
results from the two models in formatting a rating recommendation.
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 19, 2008.
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 six months
As of the September 16, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 80% to $228.76
million from $1.16 billion at securitization. The
Certificates are collateralized by 73 mortgage loans ranging in size from
less than 1% to 9% of the pool, with the top ten loans
representing 36% of the pool. Thirteen loans, representing
23% of the pool, have defeased and are collateralized with
U.S. Government securities. Defeasance at last review
represented 25% of the pool.
Fourteen 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
Thirty-one loans have been liquidated from the pool, resulting
in an aggregate realized loss of $15.5 million (14%
loss severity). Three loans, representing 11% of the
pool, are currently in special servicing. The largest specially
serviced loan is the Prince George Metro Center Loan ($20.3
million -- 9% of the pool), which is secured by a 375,000
square foot office building located in Hyattsville, Maryland.
The property was 59% leased in August 2010. The Borrower
has been making partial debt service payments.
The remaining two specially serviced loans are secured by limited service
hotel properties. Moody's has estimated an aggregate $5.7
million loss (23% expected loss on average) for the specially serviced
Moody's has assumed a high default probability for seven poorly
performing loans representing 11% of the pool and has estimated
a $5.4 million loss (23% expected loss based on a
50% probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 100%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 69% compared to 78%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 14% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.1%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.36X and 1.64X, respectively,
compared to 1.35X and 1.53X 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 11
compared to 17 at Moody's prior review.
The top three performing conduit loans represent 16% of the pool
balance. The largest loan is the The Clarinbridge Loan ($17.7
million -- 7.7%), which is secured by a 306-unit
multifamily property located approximately 26 miles northwest of Atlanta
in Kennesaw, Georgia. The property was 92% leased
as of June 2010 compared to 96% at last review. Moody's
LTV and stressed DSCR are 81% and 1.16X, respectively,
essentially the same as at last review.
The second largest loan is the New Brighton Manor Loan ($12.0
million -- 5.3%), which is secured by a 300-bed
nursing home located in Staten Island, New York. The loan
is on the servicer's watchlist for debt service below 1.0x.
The loan fully amortizes over its term and has amortized 9% since
last review. Moody's LTV and stressed DSCR are 124%
and 1.18X, respectively, compared to 119% and
1.22X at last review.
The third largest loan is the Kelton Towers Loan ($6.8 million
-- 3.0%), which is secured by a multifamily property
located in Westwood, California. The property was 89%
leased as of March 2010. Moody's LTV and stressed DSCR are
36% and 2.59X, respectively, compared to 34%
and 2.78X 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
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.
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 One and Affirms Five CMBS Classes of FUCMT 1999-C1
250 Greenwich Street
New York, NY 10007