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Rating Action:

Moody's Downgrades Three and Affirms 14 CMBS Classes of BSCMS 2004-TOP14

01 Sep 2011

Approximately $591.1 Million of Structured Securities Affected

New York, September 01, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes and affirmed 14 classes of Bear Stearns Commercial Mortgage Securities Trust 2004-TOP 14, Commercial Mortgage Pass-Through Certificates, Series 2004-TOP14 as follows:

Cl. A-3, Affirmed at Aaa (sf); previously on May 10, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Affirmed at Aaa (sf); previously on May 10, 2004 Definitive Rating Assigned Aaa (sf)

Cl. B, Affirmed at Aa1 (sf); previously on Jan 28, 2011 Upgraded to Aa1 (sf)

Cl. C, Affirmed at Aa3 (sf); previously on May 10, 2004 Definitive Rating Assigned Aa3 (sf)

Cl. D, Affirmed at A2 (sf); previously on Nov 12, 2009 Confirmed at A2 (sf)

Cl. E, Affirmed at A3 (sf); previously on Nov 12, 2009 Confirmed at A3 (sf)

Cl. F, Affirmed at Baa1 (sf); previously on Nov 12, 2009 Confirmed at Baa1 (sf)

Cl. G, Affirmed at Baa3 (sf); previously on Nov 12, 2009 Downgraded to Baa3 (sf)

Cl. H, Downgraded to B1 (sf); previously on Nov 12, 2009 Downgraded to Ba2 (sf)

Cl. J, Downgraded to B2 (sf); previously on Nov 12, 2009 Downgraded to B1 (sf)

Cl. K, Downgraded to B3 (sf); previously on Nov 12, 2009 Downgraded to B2 (sf)

Cl. L, Affirmed at Caa1 (sf); previously on Jan 28, 2011 Downgraded to Caa1 (sf)

Cl. M, Affirmed at Caa2 (sf); previously on Jan 28, 2011 Downgraded to Caa2 (sf)

Cl. N, Affirmed at Caa3 (sf); previously on Jan 28, 2011 Downgraded to Caa3 (sf)

Cl. O, Affirmed at Ca (sf); previously on Jan 28, 2011 Downgraded to Ca (sf)

Cl. X-1, Affirmed at Aaa (sf); previously on May 10, 2004 Definitive Rating Assigned Aaa (sf)

Cl. X-2, Affirmed at Aaa (sf); previously on May 10, 2004 Definitive Rating Assigned Aaa (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 and concerns about refinance risk. Sixty-nine loans, representing 78% of the pool, mature within the next 36 months. Four of these loans, representing 15% of the pool, mature within the next 24 months and have a Moody's stressed debt service coverage ratio (DSCR) below 1.00X.

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 their current ratings.

Moody's rating action reflects a cumulative base expected loss of 4.1% 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 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.

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 current sluggish macroeconomic environment and performance in the commercial real estate property markets. While commercial real estate property markets are gaining momentum, a consistent upward trend will not be evident until the volume of transactions increases, distressed properties are cleared from the pipeline and job creation rebounds. The hotel and multifamily sectors are continuing to show signs of recovery through the first half of 2011, while recovery in the non-core office and retail sectors are tied to pace of recovery of the broader economy. Core office markets are showing signs of recovery through lending and leasing activity. The availability of debt capital continues to improve with terms returning toward market norms. Moody's central global macroeconomic scenario reflects an overall sluggish recovery as the most likely scenario through 2012, amidst ongoing individual, corporate and governmental deleveraging, persistent unemployment, and government budget considerations, however the downside risks to the outlook have risen since last quarter.

The primary methodology used in this rating was "Moody's Approach to Rating Fusion U.S. CMBS Transactions" published in April 2005. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.60 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 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 January 28, 2011. 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 August 12, 2011 distribution date, the transaction's aggregate certificate balance has decreased by 33% to $596.9 million from $894.5 million at securitization. The Certificates are collateralized by 96 mortgage loans ranging in size from less than 1% to 11% of the pool, with the top ten loans representing 36% of the pool. The pool contains two loans with investment grade credit estimates that represent 4% of the pool. Seven loans, representing 13% of the pool, have defeased and are collateralized with U.S. Government securities.

Fourteen 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 performance.

Three loans have been liquidated from the pool, resulting in an aggregate realized loss of $3.2 million (3% loss severity overall). The only loan in special servicing is the U.S. Bank Tower Loan ($64.7 million - 11% of the pool). The loan represents a pari passu interest in a $260 million first mortgage loan. The loan is secured by a 1.4 million square foot (SF) office tower and accompanying parking garage located in downtown Los Angeles, California. The loan sponsor is Maguire Properties. The loan was transferred into special servicing due to imminent default. The property was 58% leased as of December 2010, essentially the same as at last review. Even with the substantial decline in cash flow from the dramatic rise in vacancy, the property still generates cash flow in excess of debt service. However, given the softness in the Los Angeles office market, it is anticipated that new tenants will be paying lower rents than those currently in place. The loan remains current and is interest-only for the entire term. Moody's LTV and stressed DSCR are 135% and 0.74X, respectively, the same at last review.

Moody's has assumed a high default probability for eight poorly performing loans representing 8% of the pool and has estimated a $7.5 million aggregate loss (15% expected loss based on a 50% probability default) from these troubled loans.

Moody's was provided with full and partial year 2010 and partial year 2011 operating results for 92% and 24% of the pool's non-defeased loans, respectively. Excluding troubled loans, Moody's weighted average LTV is 85%, the same at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 12% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.3%.

Excluding troubled loans, Moody's actual and stressed DSCRs are 1.68X and 1.39X, respectively, compared to 1.71X 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 30 compared to 31 at Moody's prior review.

The largest loan with a credit estimate is the 12 E 22nd Street Loan ($12.1 million -- 2.0% of the pool), which is secured by an 89-unit apartment building located in New York City. The property was 99% leased as of December 2010 compared to 98% as of December 2009. Moody's credit estimate and stressed DSCR are Aa1 and 1.76X, respectively, compared to Aa1 and 1.85X at last review.

The second largest loan with a credit estimate is the Lincoln Tower Cooperative Loan ($11.6 million -- 1.9% of the pool), which is secured by a 387-unit residential co-op located in the Upper West Side submarket of New York City. Moody's credit estimate and stressed DSCR are Aaa and 4.51X, respectively, compared to Aaa and 4.49X at last review.

The top three performing conduit loans represent 13% of the pool. The largest loan is the 840 Memorial Drive Loan ($38.3 million -- 6.4% of the pool), which is secured by a 129,000 SF biotech lab/office building located in Cambridge, Massachusetts. The property was 70% leased as of March 2011 compared to 73% as of December 2009. Moody's LTV and stressed DSCR are 127% and 0.81X, respectively, compared to 125% and 0.82X at last review.

The second largest loan is the 1401 & 1501 Nolan Ryan Expressway Loan ($19.6 million -- 3.3% of the pool), which is secured by a three-story Class A office building and a single story R&D facility, totaling 234,000 SF, located in Arlington, Texas. The property is 100% leased to the Siemens Dematic Postal Automation L.P (SDPA), a member of the Siemens AG family, through January 2014. The loan matures in February 2014. Moody's analysis reflects a downward adjustment to the property's net operating income due to concerns about single tenant occpancy. Moody's LTV and stressed DSCR are 80% and 1.21X, respectively, compared to 82% and 1.19X at last review.

The third largest loan is the Greenville Place Apartments Loan ($18.7 million -- 3.1% of the pool), which is secured by a 519-unit apartment property located in Greenville, Delaware. The property was 85% leased as of March 2011 compared to 81% as of February 2009. Moody's LTV and stressed DSCR are 83% and 1.20X, respectively, compared to 91% and 1.10X, at last review.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the 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 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

New York
Raymond Flores
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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 Three and Affirms 14 CMBS Classes of BSCMS 2004-TOP14
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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