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Rating Action:

Moody's Downgrades Three and Affirms 14 CMBS Classes of JPMCC 2006-LDP8

Global Credit Research - 15 Nov 2013

Approximately $2.3 Billion of Structured Securities Affected

New York, November 15, 2013 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes and affirmed 14 classes of J.P. Morgan Chase Commercial Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2006-LDP8 as follows:

Cl. A-1A, Affirmed Aaa (sf); previously on Oct 2, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-3B, Affirmed Aaa (sf); previously on Oct 2, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Affirmed Aaa (sf); previously on Oct 2, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-J, Downgraded to Baa2 (sf); previously on Nov 12, 2009 Downgraded to A3 (sf)

Cl. A-M, Affirmed Aaa (sf); previously on Oct 2, 2006 Definitive Rating Assigned Aaa (sf)

Cl. A-SB, Affirmed Aaa (sf); previously on Oct 2, 2006 Definitive Rating Assigned Aaa (sf)

Cl. B, Downgraded to Ba2 (sf); previously on Jan 20, 2012 Downgraded to Baa3 (sf)

Cl. C, Downgraded to B1 (sf); previously on Jan 20, 2012 Downgraded to Ba2 (sf)

Cl. D, Affirmed B2 (sf); previously on Dec 20, 2012 Downgraded to B2 (sf)

Cl. E, Affirmed B3 (sf); previously on Dec 20, 2012 Downgraded to B3 (sf)

Cl. F, Affirmed Caa2 (sf); previously on Dec 20, 2012 Downgraded to Caa2 (sf)

Cl. G, Affirmed Caa3 (sf); previously on Dec 20, 2012 Downgraded to Caa3 (sf)

Cl. H, Affirmed Ca (sf); previously on Dec 20, 2012 Downgraded to Ca (sf)

Cl. J, Affirmed C (sf); previously on Dec 20, 2012 Downgraded to C (sf)

Cl. K, Affirmed C (sf); previously on Dec 20, 2012 Downgraded to C (sf)

Cl. L, Affirmed C (sf); previously on Feb 24, 2011 Downgraded to C (sf)

Cl. X, Affirmed Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

RATINGS RATIONALE

The downgrades are due to higher than anticipated losses from specially serviced and trobled loans.

The affirmations of the investment grade P&I classes 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. The ratings of the below investment grade P&I classes are consistent with Moody's expected loss and thus are affirmed. The rating of the IO Class, Class X, is consistent with the expected credit performance of its referenced classes and thus is affirmed.

Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their current ratings. 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 7.1% of the current balance. At last review, Moody's base expected loss was 5.7%. Realized losses and base expected loss are now 7.5% of the original pooled balance compared to 7.2% 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.

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.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.64 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 15 compared to 18 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 8.6 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 December 20, 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 October 15, 2013 distribution date, the transaction's aggregate certificate balance has decreased by 25% to $2.3 billion from $3.1 billion at securitization. The Certificates are collateralized by 125 mortgage loans ranging in size from less than 1% to 17% of the pool, with the top ten loans representing 64% of the pool. Two loans, representing less than 1% of the pool, have defeased and are secured by U.S. Government securities.

Forty-five loans, representing 26% 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.

Thirteen loans have been liquidated from the pool, resulting in an aggregate realized loss of $68.2 million (51% loss severity on average). Eight loans, representing 3% of the pool, are currently in special servicing. Moody's estimates an aggregate $29.4 million loss for specially serviced loans (45% expected loss on average).

Moody's has assumed a high default probability for 16 poorly performing loans representing 13% of the pool and has estimated an aggregate $48.4 million loss (16% expected loss based on a 43% probability default) from these troubled loans.

Moody's was provided with full year 2012 operating results for 80% of the pool's non-specially serviced loans. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 107% compared to 99% 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 8.6%.

Excluding special serviced and troubled loans, Moody's actual and stressed DSCRs are 1.25X and 0.90X, respectively, compared to 1.33X and 0.97X 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 39% of the pool. The largest loan is the Park La Brea Apartments Loan ($388 million -- 16.9% of the pool), which represents a pari passu interest in a $775 million first mortgage loan. The loan is secured by a 4,238-unit multifamily property located in Los Angeles, California, a strong multifamily market with a Moody's Red-Yellow-Green score of 87. The property was 96% leased as of April 2013, the same as at last review. Performance has declined slightly since last review, primarily due to a decrease in average rents. The loan is interest-only for the entire term. Moody's LTV and stressed DSCR are 106% and 0.76X, respectively, compared to 101% and 0.80X, at last review.

The second largest loan is the 53 State Street Loan ($280 million -- 12.2% of the pool), which is secured by a 1.1 million square foot (SF) Class A office building located in the financial office submarket in Boston, Massachusetts. The property was 81% leased as of June 2013 compared to 77% at last review. The property was purchased by UBS Realty Investors in December 2011 for $610 million. The loan is interest-only for the entire term. Moody's LTV and stressed DSCR are 107% and 0.85X, respectively, compared to 110% and 0.83X at last review.

The third largest loan is the Gas Company Tower Loan ($229 million -- 10.0% of the pool), which represents a pari passu interest in a $458 million first mortgage loan. The loan is secured by a 1.3 million SF Class A office building located in downtown Los Angeles, California. The loan is on the watchlist due to declining occupancy and base rent. The largest tenant, Southern California Gas Company (senior unsecured rating A2, Possible Upgrade; outlook - ratings under review) significantly reduced both its space footprint and base rent in November 2011. Additionally, a tenant representing 11% of the net rentable area vacated in September 2013. As of June 2013, the property was 82% leased compared to 76% at last review. The property was recently sold to Brookfield Office Properties for approximately $430 million. The loan is interest only for the entire term and has an actual DSCR of 1.11X based on the most recent financial information available. Moody's views this loan as a troubled loan. Moody's LTV and stressed DSCR are 155% and 0.61X, respectively, compared to 167% and 0.57X 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.

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.

Tarun Bhan
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

Sandra Ruffin
VP - Senior Credit Officer
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 Three and Affirms 14 CMBS Classes of JPMCC 2006-LDP8
No Related Data.

 

© 2014 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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