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Rating Action:

Moody's Downgrades Two and Affirms Four CMBS Classes of GECMC 2001-1

22 Aug 2012

Approximately $60.6 Million of Structured Securities Affected

New York, August 22, 2012 -- Moody's Investors Service (Moody's) downgraded the ratings of two classes, and affirmed four classes of GE Capital Commercial Mortgage Corporation, Commercial Mortgage Pass-Through Certificates, Series 2001-1 as follows:

Cl. G, Downgraded to Ba1 (sf); previously on Sep 1, 2011 Upgraded to Baa2 (sf)

Cl. H, Affirmed at Caa1 (sf); previously on Sep 1, 2011 Upgraded to Caa1 (sf)

Cl. I, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. J, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. K, Affirmed at C (sf); previously on Jul 29, 2010 Downgraded to C (sf)

Cl. X-1, Downgraded to Caa3 (sf); previously on Feb 22, 2012 Downgraded to Caa2 (sf)

RATINGS RATIONALE

The downgrade of Class G is due to concerns that this class may experience interest shortfalls caused by specially serviced loans. Based on the most recent remittance statement, Classes K through H are currently experiencing interest shortfalls. The downgrade of the IO Class, Class X-1, is due to the decline in credit quality of the referenced classes.

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 47% of the current balance. At last review, Moody's cumulative base expected loss was 23%. The current cumulative base expected loss represents a higher percentage of the pool than at last review because of significant paydowns. However, the dollar amount of expected loss is less. At last review Moody's cumulative base expected loss was $32 million compared to $28 million at this review. Moody's provides a current list of base expected 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 and commercial real estate property markets. While commercial real estate property values are beginning to move in a positive direction along with a rise in investment activity and stabilization in core property type performance, a consistent upward trend will not be evident until the volume of investment activity steadily increases, distressed properties are cleared from the pipeline, and job creation rebounds. The hotel sector is performing strongly and the multifamily sector continues to show increases in demand. Moderate improvements in the office sector continue with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow. Performance in the retail sector has been mixed with lackluster sales driven by discounting and promotions. However, rising wages and reduced unemployment, along with increased consumer confidence, is helping to spur consumer spending. Across all property sectors, the availability of debt capital continues to improve with increased securitization activity of commercial real estate loans supported by a monetary policy of low interest rates. Moody's central global macroeconomic scenario reflects healthier growth in the US and US growth decoupling from the recessionary trend in the euro zone, while a mild recession is expected in 2012. Downside risks remain significant, although they have moderated compared to earlier this year. Major downside risks include an increase in the potential magnitude of the euro area recession, the risk of an oil supply shock weighing negatively on consumer purchasing power and home prices, ongoing and policy-induced banking sector deleveraging leading to a tightening of bank lending standards and credit contraction, financial market turmoil continuing to negatively impact consumer and business confidence, persistently high unemployment levels, and weak housing markets, any or all of which will continue to constrain growth.

The methodologies used in this rating were "Moody's Approach to Rating U.S. CMBS Conduit Transactions" published in September 2000, "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012, 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 2.61 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 review also utilized the CMBS IO calculator ver1.1 which uses the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit assessments; 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 6 compared to 14 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 8.4 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 September 1, 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 15, 2012 distribution date, the transaction's aggregate certificate balance has decreased by 95% to $60.6 million from $1.13 billion at securitization. The Certificates are collateralized by eight mortgage loans ranging in size from 2% to 25% of the pool. The pool does not include any defeased loans or loans with investment grade credit assessments.

Three loans, representing 17% 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.

Twenty-seven loans have been liquidated from the pool, resulting in an aggregate realized loss of $44.7 million (30% loss severity). Currently three loans, representing 60% of the pool, are in special servicing. The largest specially serviced loan is the Hawthorn Suites Loan ($15 million -- 25% of the pool), which is secured by a 280 room extended stay hotel located in Atlanta, Georgia. The loan was transferred to special servicing in April 2009. A moisture and mold issue at the property forced 43 rooms to be put out of service for most of 2010. Remediation costs were funded from the property's cash flow and the rooms were back in service by the end of 2010. The property is currently being marketed for sale.

The remaining two specially serviced properties are secured by a retail and office property. Moody's estimates an aggregate $27 million loss for the specially serviced loans (73% expected loss on average).

Moody's was provided with full year 2011 operating results for 100% of the pool. Excluding special serviced loans, Moody's weighted average LTV is 80% compared to 88% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 15% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.0%.

Excluding special serviced loans, Moody's actual and stressed DSCRs are 1.14X and 1.59X, respectively, compared to 1.09X and 1.29X 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 31% of the pool balance. The largest loan is the Roswell Corners Shopping Center Loan ($8.4 million -- 14% of the pool), which is secured by a 136,700 square foot (SF) retail center located in suburban Atlanta. The property is shadow anchored by Target. Major tenants at the collateral are TJ Maxx (22% of the net rentable area (NRA); lease expiration -- 4/30/2015) and Staples (18% of the NRA; lease expiration -- 2/28/2015). As of December 2011, the property was 100% leased, the same as at the prior review and an increase from 92% at securitization. Property performance has increased due to an increase in base rental revenue, and the loan benefits from amortization as it is fully amortizing. Moody's LTV and stressed DSCR are 46% and 2.22X, respectively, compared to 57% and 1.80X at last review.

The second largest loan is the Courtyard by Marriott - Manchester Loan ($5.3 million -- 8.8% of the pool), which is secured by a 90 room hotel located in Manchester, Connecticut. The loan was transferred to special servicing in April 2010 due to imminent default, and was transferred back to the master servicer in June 2011 with a modification agreement extending the maturity date to May 2014. Per the STAR Report, the property is performing in line with the competitive set and has slight increases in RevPAR and occupancy since last review. Despite the relatively stable performance since last review, Moody's stressed the cash flow to account for the potential variance in performance that this property has historically shown, as well as the potential refinance risk. Moody's LTV and stressed DSCR are 126% and 1.03X, respectively, compared to 104% and 1.25X at last review.

The third largest performing loan is the 524 Lamar Loan ($5.2 million -- 8.7% of the pool), which is secured by a 36,000 SF office property located in downtown Austin Texas. The property is 100% leased to 10 tenants, essentially the same at last review. Property performance has been stable and there is limited near term lease roll over. The loan matures in January 2016. Moody's LTV and stressed DSCR are 81% and 1.40X, respectively, compared to 87% and 1.31X at last review.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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.

Brad Kamedulski
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

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 Four CMBS Classes of GECMC 2001-1
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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