Approximately $734 Million of Structured Securities Affected
New York, April 11, 2013 -- Moody's Investors Service (Moody's) downgraded the ratings of two classes
and affirmed 11 classes of J.P. Morgan Commercial Mortgage
Finance Corp. Series 2003-CIBC7 as follows:
Cl. A-1A, Affirmed Aaa (sf); previously on Jan
14, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed Aaa (sf); previously on Jan
14, 2004 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed Aaa (sf); previously on Jul 23,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed Aaa (sf); previously on Jul 23,
2007 Upgraded to Aaa (sf)
Cl. D, Affirmed Aa3 (sf); previously on Sep 2,
2010 Confirmed at Aa3 (sf)
Cl. E, Affirmed A3 (sf); previously on Sep 2,
2010 Downgraded to A3 (sf)
Cl. F, Affirmed Ba1 (sf); previously on Sep 2,
2010 Downgraded to Ba1 (sf)
Cl. G, Downgraded to B1 (sf); previously on Sep 2,
2010 Downgraded to Ba3 (sf)
Cl. H, Affirmed Caa3 (sf); previously on Sep 2,
2010 Downgraded to Caa3 (sf)
Cl. J, Downgraded to C (sf); previously on Sep 2,
2010 Downgraded to Ca (sf)
Cl. K, Affirmed C (sf); previously on Sep 2, 2010
Downgraded to C (sf)
Cl. L, Affirmed C (sf); previously on Sep 2, 2010
Downgraded to C (sf)
Cl. X-1, Affirmed Ba3 (sf); previously on Feb
22, 2012 Downgraded to Ba3 (sf)
RATINGS RATIONALE
The downgrades are due to a combination of higher expected losses,
the risk of increased interest shortfalls and a higher level of certainty
for expected losses at the bottom of the capital stack.
The affirmations of the principal 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. Based on our current base expected
loss, the credit enhancement levels for the affirmed classes are
sufficient to maintain their current ratings.
The rating of the IO Class, Class X-1, is consistent
with the expected credit performance of its referenced classes and thus
is affirmed.
Moody's rating action reflects a base expected loss of approximately 3.5%
of the current deal balance. At last review, Moody's base
expected loss was approximately 3.3%. Moody's
base expected loss plus realized loss is now 5.0% of the
original securitized deal balance compared to 4.6% at Moody's
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.
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 extent of growth in
the current macroeconomic environment given the weak pace of recovery
and commercial real estate property markets. Commercial real estate
property values are continuing to move in a modestly positive direction
along with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, a consistent upward
trend will not be evident until the volume of investment activity steadily
increases for a significant period, non-performing properties
are cleared from the pipeline, and fears of a Euro area recession
are abated.
The hotel sector is performing strongly with nine straight quarters of
growth and the multifamily sector continues to show increases in demand
with a growing renter base and declining home ownership. Recovery
in the office sector continues at a measured pace with minimal additions
to supply. However, office demand is closely tied to employment,
where growth remains slow and employers are considering decreases in the
leased space per employee. Also, primary urban markets are
outperforming secondary suburban markets. Performance in the retail
sector continues to be mixed with retail rents declining for the past
four years, weak demand for new space and lackluster sales driven
by internet sales growth. Across all property sectors, the
availability of debt capital continues to improve with robust securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates.
Moody's central global macroeconomic scenario calls for US GDP growth
for 2013 that is likely to remain close to 2% as the greater impetus
from the US private sector is likely to broadly offset the drag on activity
from more restrictive fiscal policy. Thereafter, we expect
the US economy to expand at a somewhat faster pace than is likely this
year, closer to its long-run average pace of growth.
Risks to our forecasts remain skewed to the downside despite recent positive
developments. Moody's believes that the three most immediate
risks are: i) the risk of a deeper than currently expected recession
in the euro area accompanied by deeper credit contraction, potentially
triggered by a further intensification of the sovereign debt crisis;
ii) slower-than-expected recovery in major emerging markets
following the recent slowdown; and iii) an escalation of geopolitical
tensions, resulting in adverse economic developments.
The principal methodology used in this rating was "Moody's Approach to
Rating Fusion U.S. CMBS Transactions" published in April
2005. The methodology used in rating Class X-1 was "Moody's
Approach to Rating Structured Finance Interest-Only Securities"
published in February 2012. 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 2.62 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 pay down 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
underlying ratings 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 underlying rating level,
is incorporated for loans with similar credit assessments in the same
transaction.
The conduit model includes an IO calculator, which uses the following
inputs to calculate the proposed IO rating based on the published methodology:
original and current bond ratings and credit estimates; original
and current bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type as defined in the
published methodology. The calculator then returns a calculated
IO rating based on both a target and mid-point. For example,
a target rating basis for a Baa3 (sf) rating is a 610 rating factor.
The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e.
the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf)
rating factor of 940). If the calculated IO rating factor is 700,
the CMBS IO calculator would provide both a Baa3 (sf) and Ba1 (sf) IO
indication for consideration by the rating committee.
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 36
compared to 40 at Moody's prior 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 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 April
26, 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 March 12, 2013 distribution date, the transaction's
aggregate certificate balance has decreased by 47% to $734
million from $1.39 billion at securitization. The
Certificates are collateralized by 147 mortgage loans ranging in size
from less than 1% to 7% of the pool, with the top
ten loans (excluding defeasance) representing 28% of the pool.
The pool includes four loans with investment-grade credit assessments,
representing 13% of the pool. Twenty-five loans,
representing approximately 29% of the pool, are defeased
and are collateralized by U.S. Government securities.
Twenty-two loans, representing 12% 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 liquidated from the pool, resulting in an aggregate
realized loss of $44 million (62% average loan loss severity).
Currently, five loans, representing 2% of the pool,
are in special servicing. Moody's estimates an aggregate $9
million loss (51% expected loss) for all specially serviced loans.
Moody's has assumed a high default probability for eight poorly performing
loans representing 6% of the pool. Moody's analysis attributes
to these troubled loans an aggregate $9 million loss (19%
expected loss severity based on a 50% probability default).
Moody's was provided with full-year 2011 and partial year 2012
operating results for 98% and 94% of the performing pool,
respectively. Excluding troubled and specially-serviced
loans, Moody's weighted average conduit LTV is 70% compared
to 72% at last full review. Moody's net cash flow reflects
a weighted average haircut of 11.6% to the most recently
available net operating income. Moody's value reflects a weighted
average capitalization rate of 9.6%
Excluding troubled and specially-serviced loans, Moody's
actual and stressed conduit DSCRs are 1.58X and 1.71X,
respectively, compared to 1.57X and 1.66X 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 largest loan with a credit assessment is the One Post Office Square
Loan ($53 million -- 7% of the pool), which represents
a participation interest in a $107 million senior mortgage loan.
The loan is secured by a 766,000 square foot 40-story office
tower located in the financial district of Boston, Massachusetts.
The property was 90% leased as of March 2012, down slightly
from 92% as of year-end 2011 reporting. The property
is encumbered by a $49 million subordinate note. The loan
benefits from amortization. Moody's credit assessment and stressed
DSCR are Aa1 and 2.42X, respectively, compared to Aa1
and 2.44X at last review.
The second largest loan with a credit assessment is the Brown Noltemeyer
Apartments Portfolio ($24 million -- 3% of the pool),
which is a portfolio of five cross-collateralized loans secured
by eight multifamily properties located in Louisville, Kentucky.
The properties are primarily of 1980s vintage. The portfolio has
generally enjoyed occupancy rates above 90% overall, despite
a recent decline in performance of the Brown Noltemeyer 2 Loan.
Moody's current credit assessment and stressed DSCR are Aa1 and 2.42X,
respectively, compared to Aa1 and 2.48X at last review.
The two remaining loans with credit assessments are secured by residential
cooperatives. These are low LTV loans to which Moody's assigns
a credit assessment of Aaa.
The top three performing conduit loans represent 10% of the pool.
The largest loan is the Potomac Run Loan ($40 million -- 6%
of the pool), which is secured by a 361,000 square-foot
community shopping center located in Sterling, Virginia, a
suburb of Washington, DC. The largest tenants at the center
are Toys 'R Us, Michael's and H.H. Gregg.
The loan was recently on the watchlist following the departure of anchor
tenant Circuit City. The Circuit City space has since been filled
with electronics retailer H.H. Gregg. The property
was 94% leased as of year-end 2011 compared to 98%
the prior year. Moody's current LTV and stressed DSCR are 91%
and 1.10X, respectively, compared to 96% and
1.04X at last review.
The second largest loan is the Danka Portfolio Loan ($18 million
-- 2% of the pool), which is secured by a portfolio
of three single-tenant industrial/office properties in St.
Petersburg, Florida. The tenant is Konica Minolta Danka Imaging.
Moody's valuation incorporates a dark/lit analysis due to the single-tenancy
of the properties. Moody's current LTV and stressed DSCR are 71%
and 1.70X, respectively, compared to 72% and
1.67X at last review.
The third largest loan is the 19-21 East 64th Street Loan ($13
million -- 2% of the pool), which is secured by a 19,000
square foot property located on the Upper East Side of Manhattan.
The New York headquarters of the Wildenstein Gallery, a high-end
art gallery, is the primary occupant of the building. Moody's
current LTV and stressed DSCR are 123% and 0.84X,
respectively, compared to 115% and 0.89X 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.
In conducting surveillance of this credit, Moody's considered performance
data contained in servicer and remittance reports. Moody's obtains
servicer reports on this transaction on a periodic basis, at least
annually.
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.
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.
Wesley Flamer-Binion
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
Michael Gerdes
MD - Structured Finance
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 Two and Affirms 11 CMBS Classes of JPMCC 2003-CIBC7
