Approximately $48.9 Million of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) confirmed the ratings of one class,
downgraded two classes and affirmed one class of Goldman Sachs Mortgage
Securities Corporation II, Commercial Mortgage Pass-Through
Certificates 1999-C1 as follows:
X, Affirmed at Aaa (sf); previously on Mar 1, 1999 Definitive
Rating Assigned Aaa (sf)
F, Confirmed at Aa2 (sf); previously on Oct 5, 2010 Aa2
(sf) Placed Under Review for Possible Downgrade
G, Downgraded to Caa2 (sf); previously on Oct 5, 2010
B3 (sf) Placed Under Review for Possible Downgrade
H, Downgraded to C (sf); previously on Oct 5, 2010 Ca
(sf) Placed Under Review for Possible Downgrade
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 as well as interest shortfalls.
The confirmation and 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.
On October 5, 2010 Moody's placed three classes on review
for possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
23.7% of the current balance. At last review,
Moody's cumulative base expected loss was 14.9%.
Moody's stressed scenario loss is 25.2% 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
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 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 these ratings were "CMBS:
Moody's Approach to Rating U.S. Conduit Transactions"
published in September 2000, "CMBS: 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 2, 1998.
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 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.
Under Moody's CTL approach, the rating of a transaction's
certificates is primarily based on the senior unsecured debt rating (or
the corporate family rating) of the tenant, usually an investment
grade rated company, leasing the real estate collateral supporting
the bonds. 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 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 14
compared to 23 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 8.0 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 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 July 9, 2009. 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 November 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 94% to $54.7
million from $890.6 million at securitization. The
Certificates are collateralized by 36 mortgage loans ranging in size from
less than 1% to 12% of the pool, with the top ten
loans representing 44% of the pool. Two loans, representing
18% of the pool, have defeased and are collateralized with
U.S. Government securities. The pool includes s a
credit tenant lease (CTL) component representing 6% of the pool.
The CTL loans are all secured by properties leased to CVS (Moody's
Senior Unsecured rating of Baa2 -- stable outlook) under long term
bondable leases.
Nine loans, representing 14% 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.
Forty-three loans have been liquidated from the pool, resulting
in an aggregate realized loss of $23.2 million (8%
loss severity overall). The pool had experienced an aggregate $18.5
million realized loss at last review. Seven loans, representing
41% of the pool, are currently in special servicing.
The largest specially serviced loan is the Old Times Union Building Loan
($6.3 million -- 11.6%),
which is secured by a 110,443 square foot office complex located
in Albany, New York. The properties were built in 1920 and
1930. The loan transferred to special servicing in May 2010 and
matured in June 2010. The property has been vacant since June 2010.
The second largest specially serviced loan is the Howard Johnson Riverwalk
Plaza Hotel Loan ($5.9 million -- 10.7%),
which is secured by a 132-key limited service hotel located in
San Antonio, Texas. The loan was transferred to special servicing
in September 2008 for maturity default. The remaining five specially
serviced loans are secured by a mix of multifamily, retail and industrial
properties. Moody's has estimated an aggregate $12.5
million loss (54% expected loss on average) for the specially serviced
loans.
Based on the most recent remittance statement, Classes G through
J have experienced cumulative interest shortfalls totaling $3.8
million. Moody's anticipates that the pool will continue to experience
interest shortfalls because of the high exposure to specially serviced
loans. Interest shortfalls are caused by special servicing fees,
including workout and liquidation fees, appraisal subordinate entitlement
reductions (ASERs), extraordinary trust expenses and non-advancing
by the master servicer based on a determination of non-recoverability.
The master servicer has made a determination of non-recoverability
for four specially serviced loans, representing 24% of the
pool. The most recent determinations were made on September 13,
2010 for the Howard Johnson Riverwalk Loan ($5.9 million
-- 10.8% of the pool) and the Dick's Clothing
Loan ($2.6 million -- 4.7%).
Moody's has assumed a high default probability for two poorly performing
loans representing 3% of the pool and has estimated a $480,900
aggregate loss (30% expected loss based on a 50% probability
default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 97%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 48% compared to 108%
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 10.1%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.42X and 2.66X, respectively,
compared to 1.09X and 1.46X 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 performing loans represent 27% of the pool balance.
The largest loan is the Meadow Brook Apartments Loan ($2.3
million -- 4.3%), which is secured by a 120-unit
multifamily property located in Center Township, Pennsylvania.
Moody's LTV and stressed DSCR are 54% and 1.91X,
respectively, compared to 65% and 1.59X at last review.
The second largest loan is the Food-4-Less Center Loan ($2.2
million -- 3.9%), which is secured by a 49,725
square foot single tenant retail building located in San Luis Obispo,
California. The property is leased to Food-4-Less
through December 2017, ten months prior to the loan maturity in
October 2018. Moody's LTV and stressed DSCR are 47%
and 2.06X, respectively, compared to 56% and
1.74X at last review. The third largest loan is the Sahara
View Apartments Loan ($1.7 million -- 3.0%),
which is secured by a 81-unit multifamily property in Las Vegas,
Nevada. Moody's LTV and stressed DSCR are 81% and
1.33X, respectively, compared to 93% and 1.16X
at last review.
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
Polina Margolina
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 Two, Confirms One and Affirms One CMBS Class of GSMCS 1999-C1
