Approximately $1.2 Billion of Structured Securities Affected
New York, March 02, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of two classes
and affirmed eight classes of Credit Suisse First Boston Mortgage Securities
Corp., Commercial Mortgage Pass-Through Certificates,
Series 2004-C3 as follows:
Cl. B, Affirmed at Aa3 (sf); previously on Mar 4,
2010 Downgraded to Aa3 (sf)
Cl. C, Affirmed at A2 (sf); previously on Mar 4,
2010 Downgraded to A2 (sf)
Cl. D, Affirmed at Baa1 (sf); previously on Mar 4,
2010 Downgraded to Baa1 (sf)
Cl. E, Downgraded to Ba3 (sf); previously on Mar 4,
2010 Downgraded to Ba1 (sf)
Cl. F, Downgraded to Caa1 (sf); previously on Mar 4,
2010 Downgraded to B3 (sf)
Cl. G, Affirmed at Caa2 (sf); previously on Mar 4,
2010 Downgraded to Caa2 (sf)
Cl. H, Affirmed at Ca (sf); previously on Mar 4,
2010 Downgraded to Ca (sf)
Cl. J, Affirmed at C (sf); previously on Mar 4,
2010 Downgraded to C (sf)
Cl. K, Affirmed at C (sf); previously on Mar 4,
2010 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on Mar 4,
2010 Downgraded to C (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, as well as interest shortfalls that are currently affecting
the transaction.
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 did not address the ratings of Classes A-3,
A-4, A-5, A-1A, A-X,
and A-SP, which are all currently rated Aaa, on review
for possible downgrade. These classes were placed on review on
January 19, 2011. KeyCorp Real Estate Capital Markets,
Inc. (KRECM) is the master servicer on this transaction and deposits
collection, escrow and other accounts in KeyBank, National
Association (Keybank). Keybank no longer meets Moody's rating criteria
for an eligible depository account institution for Aaa and Aa1 rated securities.
Moody's is reviewing arrangements that KeyBank has proposed, and
that it may propose, to mitigate the incremental risk indicated
by the lower rating of the depository account institution, so as
possibly to allow the classes on review to maintain their current ratings.
Moody's rating action reflects a cumulative base expected loss of 5.3%
of the current balance. At last review, Moody's cumulative
base expected loss was 6.9%. Although Moody's
expected loss for the outstanding pool is slightly less than at last review,
the pool has experienced additional losses since last review. Realized
losses since last review combined with expected losses total 7.9%
of the current outstanding 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 sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011 The hotel and multifamily sectors are continuing to show
signs of recovery, while recovery in the office and retail sectors
will be tied to recovery of the broader economy. 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 through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodology used in this rating was "CMBS: Moody's
Approach to Rating Conduit Transactions" published in September 2000.
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 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 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.
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 March 4th, 2010. 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 February 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 25% to $1.2
billion from $1.6 billion at securitization. The
collateral balance is $2 million less than the bond balance due
to WODRAs (workout delayed reimbursements amounts) that occured over several
periods due to the Gwinnett Crossing Apartments loan modification.
The Certificates are collateralized by 148 mortgage loans ranging in size
from less than 1% to 12% of the pool, with the top
ten loans representing 31% of the pool. Twenty-three
loans, representing 28% of the pool, have defeased
and are secured by U.S. Government securities.
Thirty-four loans, representing 11% 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 since securitization,
resulting in an aggregate realized loss of $43 million (45%
loss severity overall). At last review the pool had experienced
an aggregate $16.4 million realized loss.
Seventeen loans, representing 11% of the pool, are
currently in special servicing. The largest specially serviced
loan is the Centerpointe Mall Loan ($44.1 million --
3.6% of the pool), which is secured by a 774,000
square foot retail center located in Grand Rapids, Michigan.
The largest tenants are Menard, Inc (11% of the net rentable
area (NRA), lease expiration July 2013), Toys "R" Us (6%
of the NRA, lease expiration January 2014), and Jo-Ann
Fabrics & Craft (5% of the NRA, lease expiration January
2020). The center was 70% leased as of October 2010,
essentially the same as last review, compared to 88% at securitization.
The loan transferred into special servicing on February 17, 2011
due to the borrower's inability to cover the debt service payments.
The loan's decline in performance is attributed to several tenants,
including Klingman Furniture, Steve & Barry's and Linen 'N Things,
vacating the property in 2008. The vacated space remains vacant
today. The property's net operating income has declined more than
50% since securitization. Although the loan is current,
Moody's has assumed a loss for the loan based on the property's weak market
position.
The remaining 16 specially serviced loans are secured by a mix of property
types. Moody's has estimated an aggregate $45 million loss
(33% expected loss on average) for the specially serviced loans.
Moody's has assumed a high default probability for eight poorly performing
loans representing 4% of the pool and has estimated a $6
million aggregate loss (12.5% expected loss based on a 50%
probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 86%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 88% compared to 90% at Moody's
prior review. Moody's net cash flow reflects a weighted average
haircut of 11% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of 9.0%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.44X and 1.22X, respectively,
compared to 1.41X and 1.19X 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 24,
compared to 26 at last review.
The top three loans represent 18% of the pool. The largest
loan is the Pacific Design Center Loan ($145.0 million --
11.1% of the pool), which is secured by a 916,000
square foot office and design showroom complex located in West Hollywood,
California. In addition to the showroom and office space,
the property also houses a 384-seat theater and screening room,
conference facilities, a two-story gallery leased to the
Museum of Contemporary Art, a fitness facility and two restaurants.
The property was 82% leased as of June 2009 compared to 89%
at last review. Preformance has declined slightly since last review.
Moody's LTV and stressed DSCR are 87% and 1.24X, respectively,
compared to 85% and 1.28X at last review.
The second largest loan is the BC Wood Portfolio Loan ($41 million
-- 3%), which is secured by four shopping centers
located in Louisville, Lexington and Paris, Kentucky,
all built between 1951 and 1989. The weighted average occupancy
for the four properties was 91% as of November 2010, compared
to 88% at last review. The loan sponsor is Brain C.
Wood. Overall performance has declined slightly from the prior
two reviews and securitization, mainly because of increased expenses.
Moody's LTV and stressed DSCR are 100% and 1.06X,
respectively, compared to 96% and 1.1X at last review.
The third largest loan is the Private Mini Storage Portfolio Loan ($38
million - 3%), which is secured by nine self storage
properties located in seven different markets within the state of Texas.
The portfolio's overall performance has declined since last review.
A decline in net operating income of about 30% can be attributed
to an overall decline of 12% in revenues and an increase in expenses
by 11%. Moody's LTV and stressed DSCR are 108% and
0.93X, respectively, compared to 90% and 1.1X
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 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.
New York
Brad Kamedulski
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 and Affirms Eight CMBS Classes of CSFB 2004-C3
