Approximately $1.13 Billion of Structured Securities Affected
New York, February 09, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of seven and
affirmed 13 classes of Morgan Stanley Capital I Trust 2006-TOP21,
Commercial Pass-Through Certificates, Series 2006-TOP2
as follows:
Cl. A-2 Certificate, Affirmed at Aaa (sf); previously
on Feb 22, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-AB Certificate, Affirmed at Aaa (sf); previously
on Feb 22, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-3 Certificate, Affirmed at Aaa (sf); previously
on Feb 22, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-4 Certificate, Affirmed at Aaa (sf); previously
on Feb 22, 2006 Definitive Rating Assigned Aaa (sf)
Cl. X Certificate, Affirmed at Aaa (sf); previously
on Feb 22, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-M Certificate, Affirmed at Aaa (sf); previously
on Feb 22, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-J Certificate, Affirmed at Aa3 (sf); previously
on Feb 11, 2009 Downgraded to Aa3 (sf)
Cl. B Certificate, Affirmed at A2 (sf); previously on
Feb 11, 2009 Downgraded to A2 (sf)
Cl. C Certificate, Affirmed at A3 (sf); previously on
Feb 11, 2009 Downgraded to A3 (sf)
Cl. D Certificate, Affirmed at Baa2 (sf); previously
on Feb 11, 2009 Downgraded to Baa2 (sf)
Cl. E Certificate, Affirmed at Baa3 (sf); previously
on Feb 11, 2009 Downgraded to Baa3 (sf)
Cl. F Certificate, Affirmed at Ba2 (sf); previously
on Feb 11, 2009 Downgraded to Ba2 (sf)
Cl. G Certificate, Affirmed at B1 (sf); previously on
Feb 11, 2009 Downgraded to B1 (sf)
Cl. H Certificate, Downgraded to Caa1 (sf); previously
on Feb 11, 2009 Downgraded to B3 (sf)
Cl. J Certificate, Downgraded to Caa3 (sf); previously
on Feb 11, 2009 Downgraded to Caa2 (sf)
Cl. K Certificate, Downgraded to Caa3 (sf); previously
on Feb 11, 2009 Downgraded to Caa2 (sf)
Cl. L Certificate, Downgraded to Ca (sf); previously
on Feb 11, 2009 Downgraded to Caa3 (sf)
Cl. M Certificate, Downgraded to Ca (sf); previously
on Feb 11, 2009 Downgraded to Caa3 (sf)
Cl. N Certificate, Downgraded to Ca (sf); previously
on Feb 11, 2009 Downgraded to Caa3 (sf)
Cl. O Certificate, Downgraded to C (sf); previously
on Feb 11, 2009 Downgraded to Caa3 (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 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 3.5%
of the current balance. At last review, Moody's cumulative
base expected loss was 1.8%. Moody's stressed scenario
loss is 18.9% 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 methodology used in these ratings was "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
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, 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 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 20
compared to 32 at Moody's prior full 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 January 31, 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 months.
DEAL PERFORMANCE
As of the January 2011 distribution date, the transaction's aggregate
certificate balance has decreased by 17% to $1.17
billion from $1.40 billion at securitization. The
Certificates are collateralized by 117 mortgage loans ranging in size
from less than 1% to 12% of the pool, with the top
ten loans representing 52% of the pool. The pool does not
contain any defeased loans. Five loans, representing 5.2%
of the pool, have investment grade credit estimates. At last
full review, four additional loans, Monmouth Mall Loan ($136.4
million -- 12.0%), SBC - Hoffman Estates
Loan ($101.7 million -- 8.9%),
Mervyn's Portfolio Loan ($59.4 million -- 5.2%)
and West Palm Beach Marriott Loan ($29.9 million --
2.6%), also had credit estimates. However,
due to performance declines and increased leverage these loans no longer
have credit estimates and are analyzed as part of the conduit pool.
The Monmouth Mall Loan, SBC - Hoffman Estates Loan and Mervyn's
Portfolio Loan are all discussed below.
Thirty-five loans, representing 30% 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 $5.1 million loss (32%
loss severity on average). Currently two loans, representing
1% of the pool, are in special servicing. The master
servicer has not recognized any appraisal reductions for the specially
serviced loans. Moody's has estimated an aggregate loss of $2.8
million (25% expected loss on average) for all of the specially
serviced loans.
Moody's has assumed a high default probability for six poorly performing
loans representing 7% of the pool and has estimated a $12.9
million loss (16% expected loss based on a 35% probability
default) from these troubled loans. The largest troubled loan is
the Mervyn's Portfolio Loan ($59.4 million -- 5.2%
of the pool) which is secured by 25 single tenant retail properties which
were originally 100% leased to Mervyn's. Mervyn's rejected
all of the leases as part of its bankruptcy filing in 2008. As
of March 2010, the portfolio was 33% leased to replacement
tenants. The properties are located in California (23) and Texas
(2) and total 1.9 million square feet (SF). The loan is
structured as a pari-passu note with a total outstanding principal
balance of $116.4 million. The loan is on the watchlist
due to low DSCR coverage and declining financial performance since securitization
but has remained current. The loan has benefited from 11%
amortization since securitization, strong sponsorship and several
reserve accounts for capital improvements and debt service. Moody's
LTV and stressed DSCR are 243% and 0.43X, respectively
compared to 83% and 1.20X at last full review.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 96% and 98%, respectively, of the
performing pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 91%, compared to 87%
at last full review. Moody's net cash flow reflects a weighted
average haircut of 10% to the most recently available net operating
income. Moody's value reflects a weighted average capitalization
rate of 9.3%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.60X and 1.17X, respectively,
compared to 1.72X and 1.21X at last full 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 five loans with credit estimates comprise 5.2% of the
pool. Moody's credit estimates for these loans are the same as
last full review. The Hampton Court Co-op Loan ($15.0
million -- 1.3% of the pool), 45 East 89th Street
Condop Loan ($14.0 million -- 1.2%) and
Rego Park Gardens Co-op Loan ($7.8 million --
0.7%) have credit estimates of Aaa. The 8-12
14th Street Loan ($12.5 million -- 1.1%)
currently has a credit estimate of A1. The Sunnyhurst Apartments
Loan ($10.4 -- 0.9%) has a credit estimate
of Baa3.
The top three performing conduit loans represent 29% of the pool
balance. The largest loan is the Monmouth Mall Loan ($136.4
million -- 12.0%), which previously had a credit
estimate. The loan is secured by the borrower's interest in a 1.4
million SF regional mall located in Eatontown, New Jersey.
The mall is anchored by Macy's, J.C. Penney and Lord
& Taylor. Although the performance of the property has been
stable, it has not achieved Moody's original projections.
Boscov's, a former anchor tenant comprising 261,000
SF, been vacant for two years although its lease does not expire
until April 2018. The mall shops were 84% occupied as of
September 2010 compared to 85% at last review and 94% at
securitization. The property is also encumbered by a $27.9
million junior loan which secures non-pooled classes MMA and MMB.
The loan had a 60-month interest-only period and is now
amortizing on a 360-month schedule maturing in September 2015.
Moody's LTV and and stressed DSCR for the A note are 73% and 1.19X,
respectively, compared to 70% and 1.23 at securitization.
The second largest loan is the SBC-Hoffman Estates Loan ($101.7
million -- 8.9%), also previously had a credit
estimate. The loan is secured by a 1.7 million square foot
office complex located approximately 25 miles northwest of Chicago in
Hoffman Estates, Illinois. The complex is 100% leased
to SBC Services Inc. through August 2016. The lease is guaranteed
by AT&T Corporation (senior unsecured rating A2, stable outlook).
The loan is structured as a pari passu note with a total balance of $199.4
million. The loan is currently on the watchlist because it was
not able to refinance at its anticipated repayment date (ARD) in December
2010. Moody's utilized a Lit/Dark analysis to reflect potential
cash flow volatility due to the single tenant exposure. Moody's
LTV and and stressed DSCR are 103% and 1.06X, respectively,
compared to 84% and 1.15 at securitization.
The third largest loan is the InTown Suites Portfolio - Roll Up
Loan ($88.9 million -- 7.8% of the pool),
which is secured by 30 extended-stay hotels totaling 3,791
rooms. The hotels are located in 25 cities and 17 states.
Property performance has declined as the hotel market has been affected
by the economic downturn. RevPAR for the 12-month period
ending December 2009 was $21.14 compared to $25.54
at last review and $21.99 at securitization. The
loan is amortizing on a 300-month schedule maturing in November
2015 and has paid down 11% since securitization. Moody's
LTV and stressed DSCR are 89% and 1.43X, respectively,
compared to 87% and 1.46X at securitization.
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
Tiffany Putman
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 Seven and Affirms 13 CMBS Classes of MSC 2006-TOP21
