Approximately $27.4 Million of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of two classes
and affirmed four classes of J.P. Morgan Commercial Mortgage
Finance Corp., Mortgage Pass-Through Certificates,
Series 1999-C8 as follows:
Cl. X, Affirmed at Aaa (sf); previously on Aug 17,
1999 Definitive Rating Assigned Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on May 12,
2010 Upgraded to Aaa (sf)
Cl. F, Downgraded to B1 (sf); previously on Sep 25,
2008 Upgraded to A3 (sf)
Cl. G, Downgraded to Caa1 (sf); previously on May 12,
2010 Downgraded to B2 (sf)
Cl. H, Affirmed at C (sf); previously on May 12,
2010 Downgraded to C (sf)
Cl. J, Affirmed at C (sf); previously on Jun 29,
2005 Downgraded to C (sf)
RATINGS RATIONALE
The downgrades are due to interest shortfalls which are hitting Classes
F through J.
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, Moody's stressed 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 29.8%
of the current balance. At last review, Moody's cumulative
base expected loss was 21.9%. Moody's stressed scenario
loss is 31.7% of the current balance compared to 23.2%
at last review. 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 methodology used in this rating was "CMBS: Moody's
Approach to Conduit Transactions" published in September 2000, which
is available on Moody's website at www.moodys.com.
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 credit estimate 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 estimate level, is incorporated
for loans with similar credit estimates 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 11
compared to 8 at Moody's prior review.
In cases where the Herf falls below 20, Moody's also generally
employs the large loan/single borrower methodology. Moody's
did not employ this methodology in reviewing this transaction, despite
the low Herf, because of the significant increase in subordination.
Due to the high percentage of loans in special servicing, Moody's
analysis was largely based on a loss and recovery analysis. Moody's
analysis of the conduit pool incorporated additional stresses in its cash
flow analysis to offset the decline in loan diversity.
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 May 12, 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 November 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 93% to $48.6
million from $731.5 million at securitization. The
Certificates are collateralized by 19 mortgage loans ranging in size from
1% to 13% of the pool, with the top ten loans representing
80% of the pool. One loan, representing 1%
of the pool, has defeased and is collateralized with U.S.
Government securities, compared to 10.5% at last review.
Five loans, representing 16% 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; formerly the Commercial Mortgage
Securities Association) 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.
Moody's has assumed a high default probability for four of the watchlisted
loans representing 12% of the pool. Moody's has estimated
a $2.2 million aggregate loss (37.2% expected
loss on average) from these troubled loans.
Fourteen loans have been liquidated from the pool, resulting in
an aggregate realized loss of $45.6 million (38%
loss severity on average). The pool had experienced $41
million in realized losses at last review. Five loans, representing
36% of the pool, are currently in special servicing.
The two largest specially serviced loans are the Grand Central Office
Building Loan ($5.8 million -- 11.9%
of the pool) and the Power House Office Building and Theatre Office Loan
($4.6 million -- 9.6% of the pool).
Both loans are located in the same office park in St. Louis,
Missouri and are real estate owned (REO). The master servicer has
recognized a $9.4 million aggregate appraisal reduction
for these two loans.
The remaining three specially serviced loans are secured by a mix of retail
and office property types. The master servicer has not recognized
an appraisal reduction for any of the three remaining specially serviced
loans. Moody's has estimated an aggregate $11.9 million
loss (69% expected loss on average) for the five specially serviced
loans.
Based on the most recent remittance statement, Classes F through
J have experienced cumulative interest shortfalls totaling $1.1
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) and extraordinary trust expenses.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 88% and 52% of the pool, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 57% compared to 66% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 11.0%
to the most recently available net operating income. Moody's value
reflects a weighted average capitalization rate of 11.1%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.33X and 2.08X, respectively,
compared to 1.15X and 1.75X 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 30.8% of the pool
balance. The largest loan is the Post Distribution Building Loan
($6.4 million -- 13.1% of the pool),
which is secured by a 263,800 square foot (SF) industrial property
located in Sumner, Washington. The property is under a master
lease with Evergreen Capital Trust through February 2013 and is 100%
occupied by Green Mountain Coffee Co. and Taylormade Products.
The loan has amortized 18% since securitization. Moody's
LTV and stressed DSCR are 72% and 1.46X, respectively,
compared to 87% and 1.21X at last review.
The second largest loan is the Quail Park Loan ($5.2 million
-- 10.8% of the pool), which is secured by a
71,296 square foot office property located in Las Vegas, Nevada.
As of June 2010 the property was 79% leased compared to 93%
at year-end 2009. Moody's analysis reflects a stressed cash
flow due to our concern about potential income volatility due to upcoming
lease rollovers and a soft office market. The loan has amortized
17% since securitization. Moody's LTV and stressed DSCR
are 77% and 1.44X, respectively, compared to
79% and 1.41X at last review.
The third largest performing loan is the Ridge Terrace Health Care Center
Loan ($3.4 million -- 6.9% of the pool),
which is secured by a 120-bed nursing home located in Lantana,
Florida. The property has experienced negative cash flow since
2007, however, the loan remains current and has amortized
36% since securitization. Moody's has assumed a high probability
of default due to the property's poor performance. Moody's LTV
and stressed DSCR are 226% and 0.65X, respectively,
compared 200% and 0.73X 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
Keith Banhazl
Vice President - Senior 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 Four CMBS Classes of JPMC 1999-C8
