Approximately $632.4 Million of Structured Securities Affected
New York, September 09, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of seven classes
and affirmed nine classes of Salomon Brothers Commercial Mortgage Trust
2001-C2, Commercial Mortgage Pass-Through Certificates,
Series 2001-C2 is as follows:
US$440.697M Cl. A-3 Certificate, Affirmed
at Aaa (sf); previously on Dec 27, 2001 Definitive Rating Assigned
Cl. X-1 Certificate, Affirmed at Aaa (sf); previously
on Dec 27, 2001 Definitive Rating Assigned Aaa (sf)
US$36.751M Cl. B Certificate, Affirmed at Aaa
(sf); previously on Apr 6, 2006 Upgraded to Aaa (sf)
US$10.81M Cl. C Certificate, Affirmed at Aaa
(sf); previously on Dec 8, 2006 Upgraded to Aaa (sf)
US$27.022M Cl. D Certificate, Affirmed at Aaa
(sf); previously on Aug 9, 2007 Upgraded to Aaa (sf)
US$11.89M Cl. E Certificate, Affirmed at Aa1
(sf); previously on Sep 25, 2008 Upgraded to Aa1 (sf)
US$10.809M Cl. F Certificate, Affirmed at Aa3
(sf); previously on Aug 9, 2007 Upgraded to Aa3 (sf)
US$14.052M Cl. G Certificate, Affirmed at A3
(sf); previously on Aug 9, 2007 Upgraded to A3 (sf)
US$10.809M Cl. H Certificate, Downgraded to
Ba1 (sf); previously on Aug 9, 2007 Upgraded to Baa2 (sf)
US$18.376M Cl. J Certificate, Downgraded to
B3 (sf); previously on Dec 27, 2001 Definitive Rating Assigned
US$14.052M Cl. K Certificate, Downgraded to
Ca (sf); previously on Dec 27, 2001 Definitive Rating Assigned
US$6.485M Cl. L Certificate, Downgraded to
Ca (sf); previously on Dec 27, 2001 Definitive Rating Assigned
US$5.405M Cl. M Certificate, Downgraded to
C (sf); previously on Aug 9, 2007 Downgraded to B2 (sf)
US$6.485M Cl. N Certificate, Downgraded to
C (sf); previously on Aug 9, 2007 Downgraded to Caa1 (sf)
US$5.405M Cl. P Certificate, Downgraded to
C (sf); previously on Aug 9, 2007 Downgraded to Caa2 (sf)
US$11.623M Cl. BR Certificate, Affirmed at
Aaa (sf); previously on Apr 6, 2006 Upgraded to Aaa (sf)
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans as well as refinance risk associated with loans approaching maturity.
Thirty-six loans, representing 24% of the pool,
mature within the next 24 months. Thirteen of these loans,
representing 10% of the pool, have a Moody's stressed
debt service coverage ratio (DSCR) less than 1.00X. 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 existing ratings.
Moody's rating action reflects a cumulative base expected loss of
6.6% of the current balance. At last review,
Moody's cumulative base expected loss was 2.2%.
Moody's stressed scenario loss is 8.2% 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 rating SBM7 2001-C2 is "CMBS:
Moody's Approach to Conduit Transactions" rating methodology 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, 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
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.
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 9, 2007. 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 August 13, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 28% to $632.39
million from $877.62 million at securitization. The
Certificates are collateralized by 106 mortgage loans ranging in size
from less than 1% to 3% of the pool, with the top
ten loans representing 19% of the pool. Twenty-four
loan, representing 41% of the pool, have defeased and
are collateralized with U.S. Government securities.
Defeasance at last review represented 32% of the pool.
Thirty loans, representing 18% 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
One loan has been liquidated from the pool, resulting in a realized
loss of $815,000 (46% loss severity). Five
loans, representing 8% of the pool, are currently in
special servicing. The largest specially serviced loan is The Cannery
Loan ($17.4 million -- 2.7% of the pool),
which is secured by two adjacent three-story buildings located
in the Fisherman's Wharf district of San Francisco, California.
The buildings contain a mix of retail, restaurant and office space.
The property was converted to retail use in 1967 and part of the facility
was retrofitted for office space in 2001. The loan was transferred
to special servicing in April 2010 due to imminent payment default.
The property was 23% leased as of year-end 2009.
The remaining four specially serviced loans are secured by a mix of property
types. Moody's has estimated an aggregate $24.9
million loss (47% expected loss on average) for the specially serviced
Moody's has assumed a high default probability for 11 poorly performing
loans representing 7% of the pool and has estimated a $10.8
loss (25% expected loss based on a 29% probability default)
from these troubled loans. Moody's rating action recognizes
potential uncertainty around the timing and magnitude of loss from these
Moody's was provided with full year 2009 operating results for 99%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 77% compared to 86%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 14.0% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 10.2%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.41X and 1.52X, respectively,
compared to 1.33X and 1.37X 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 45
compared to 54 at Moody's prior review.
The top three performing conduit loans represent 7% of the pool
balance. The largest loan is the Lakeshore Marketplace Shopping
Center Loan ($14.4 million -- 2.3% of
the pool), which is secured by a 326,500 square foot retail
center located in Norton Shores, Michigan. The center is
anchored by Target, TJ Maxx, and Elder-Beerman.
The property was 97% leased as of December 2009. The loan
has amortized 4% since last review. Moody's LTV and
stressed DSCR are 71% and 1.53X, respectively,
compared to 70% and 1.56X at last review.
The second largest loan is the Cumberland Crossing Loan ($14.3
million -- 2.3% of the pool), which is secured
by a 241,000 square foot retail center located in Millville,
New Jersey. The center is anchored by Wal-Mart. The
property was 86% leased as of March 2010. The loan has amortized
5% since last review. Moody's LTV and stressed DSCR
are 84% and 1.28X, respectively, compared to
89% and 1.22X at last review.
The third largest loan is the Redwood Business Park Loan #3 ($14.1
million -- 2.2% of the pool), which is secured
by a 144,000 square foot office property located in a business park
located in Petaluma, California. The property is currently
100% leased to Alcatel USA through April and November 2011.
Alcatel has already vacated the space that expires in April 2011 (50%
of the net rentable area) and it is not known whether it will vacate the
remaining space at the expiration of it's lease term. The loan
matures in August 2011. Although performance has been stable since
securitization, Moody's is concerned about the borrower's
ability to refinance the property given the leasing risk associated with
this single tenant building. Moody's LTV and stressed DSCR
are 125% and 0.91X, respectively, compared to
114% and 0.95X 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 Seven and Affirms Nine CMBS Classes of SBM7 2001-C2
250 Greenwich Street
New York, NY 10007