Approximately $33 Million of Structured Securities Affected
New York, September 18, 2014 -- Moody's Investors Service has upgraded five classes, affirmed three
classes and downgraded one class of Morgan Stanley Capital I Trust,
Series 2003-IQ5 as follows:
Cl. F, Upgraded to Aaa (sf); previously on Sep 19,
2013 Upgraded to A1 (sf)
Cl. G, Upgraded to Aaa (sf); previously on Sep 19,
2013 Upgraded to A3 (sf)
Cl. H, Upgraded to Aa2 (sf); previously on Sep 19,
2013 Upgraded to Baa2 (sf)
Cl. J, Upgraded to A2 (sf); previously on Sep 19,
2013 Upgraded to Baa3 (sf)
Cl. K, Upgraded to Baa3 (sf); previously on Sep 19,
2013 Affirmed Ba3 (sf)
Cl. L, Affirmed B1 (sf); previously on Sep 19,
2013 Affirmed B1 (sf)
Cl. M, Affirmed B2 (sf); previously on Sep 19,
2013 Affirmed B2 (sf)
Cl. N, Affirmed Caa1 (sf); previously on Sep 19,
2013 Affirmed Caa1 (sf)
Cl. X-1, Downgraded to B2 (sf); previously on
Sep 19, 2013 Affirmed Ba3 (sf)
RATINGS RATIONALE
The ratings on P&I Classes F, G, H, J and K were
upgraded based primarily on an increase in credit support resulting from
loan paydowns and amortization. The deal has paid down 47%
since Moody's last review.
The ratings on P&I Classes L, M and N were affirmed because
the transaction's key metrics, including Moody's loan-to-value
(LTV) ratio, Moody's stressed debt service coverage ratio (DSCR)
and the transaction's Herfindahl Index (Herf), are within
acceptable ranges.
The rating on the IO Class X-1 was downgraded due to the decline
in the credit performance of its reference classes resulting from principal
paydowns of higher quality reference classes.
Moody's rating action reflects a base expected loss of 11.0%
of the current balance, compared to 4.8% at Moody's
last review. Moody's base expected loss plus realized losses is
now 0.7% of the original pooled balance, compared
to 0.6% at the last review. Moody's provides
a current list of base expected losses for conduit and fusion CMBS transactions
on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration, an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in this rating were "Moody's Approach to
Rating Fusion U.S. CMBS Transactions" published in
April 2005, 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.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model v
2.64, which it uses 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 Moody's uses
to estimate Moody's value). Conduit model results at the
B2 (sf) level are based on a paydown analysis using the individual loan-level
Moody's LTV ratio. Moody's may consider other concentrations
and correlations in its analysis. Based on the model pooled credit
enhancement levels of Aa2 (sf) and B2 (sf), the required credit
enhancement on 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, Moody's
merges the credit enhancement for loans with investment-grade structured
credit assessments with the conduit model credit enhancement for an overall
model result. Moody's incorporates negative pooling (adding
credit enhancement at the structured credit assessment level) for loans
with similar structured credit assessments in the same transaction.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 3,
compared to 7 at Moody's last review.
When the Herf falls below 20, Moody's uses the excel-based
Large Loan Model v 8.7 and then reconciles and weights the results
from the conduit and large loan 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. Moody's
also further adjusts these aggregated proceeds for any pooling benefits
associated with loan level diversity and other concentrations and correlations.
DEAL PERFORMANCE
As of the September 15, 2014 distribution date, the transaction's
aggregate certificate balance has decreased by 95% to $39
million from $779 million at securitization. The certificates
are collateralized by fifteen mortgage loans ranging in size from less
than 1% to 50% of the pool, with the top ten loans
constituting 95% of the pool. One loan, constituting
50% of the pool, has an investment-grade structured
credit assessment.
Six loans, constituting 16% of the pool, are on the
master servicer's watchlist. The watchlist includes loans
that meet certain portfolio review guidelines established as part of the
CRE Finance Council (CREFC) monthly reporting package. As part
of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues that
could affect performance.
Three loans have been liquidated from the pool, resulting in an
aggregate realized loss of $1.5 million (for an average
loss severity of 9%). One loan, constituting 19%
of the pool, is currently in special servicing. The specially
serviced loan is the Wright Executive Center Loan ($7.5
million -- 19% of the pool). This loan is secured by
two office buildings located within the Dayton MSA in Fairborn,
Ohio. This loan transferred to special servicing due to maturity
default. The court has appointed a receiver who has the authority
to sell the property through the receivership.
Moody's received full year 2012 operating results for 100% of the
pool, and full year 2013 operating results for 100%.
Moody's weighted average conduit LTV is 62%, compared
to 58% at Moody's last review. Moody's conduit
component excludes loans with structured credit assessments, defeased
and CTL loans, and specially serviced and troubled loans.
Moody's net cash flow (NCF) reflects a weighted average haircut
of 21% to the most recently available net operating income (NOI).
Moody's value reflects a weighted average capitalization rate of
9.6%.
Moody's actual and stressed conduit DSCRs are 1.07X and 2.45X,
respectively, compared to 1.44X and 1.96X at the last
review. Moody's actual DSCR is based on Moody's NCF
and the loan's actual debt service. Moody's stressed
DSCR is based on Moody's NCF and a 9.25% stress rate
the agency applied to the loan balance.
The loan with a structured credit assessment is the 3 Times Square Loan
($19.3 million -- 49.6% of the pool),
which represents a participation interest in a $92 million A-Note.
The loan is collateralized by the sponsor's leasehold interest in an 880,000
square foot (SF) Class A office tower located in the Times Square district
of Midtown Manhattan. The largest tenant, Thomson Reuters
Corporation, leases 78% of the property's net rentable area
(NRA) through November 2021. The loan is fully amortizing and matures
in November 2021. Moody's current structured credit assessment
and stressed DSCR are aaa (sca.pd) and 4.43X.
The top three conduit loans represent 16% of the pool balance.
The largest loan is the Arbrook Oaks Shopping Center ($3.6
million -- 9.1% of the pool), which is secured
by a 51,000 SF shadow-anchored retail property located in
Arlington, TX. The property is currently 69% occupied,
compared to 77% at Moody's prior review. The loan
is currently on the watchlist due to a low DSCR. Moody's LTV and
stressed DSCR are 104% and 1.04X, respectively,
compared to 131% and 0.83X at the last review.
The second largest loan is the San Pedro Towne Center Loan ($1.5
million -- 3.9% of the pool), which is secured
by a 26,000 SF unanchored retail center located in San Antonio,
Texas. The property is currently 100% occupied, same
as at Moody's prior review. The loan is fully amortizing
and matures in June 2023. Moody's LTV and stressed DSCR are 53%
and 2.08X, respectively, compared to 58% and
1.92X at the last review.
The third largest loan is the Southgate Industrial Loan ($1.2
million -- 3.1% of the pool), which is secured
by a 200,000 SF industrial center located in South Gate, CA.
The property is currently 100% occupied, same as at Moody's
prior review and securitization. The loan is fully amortizing and
matures in July 2018.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
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.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Tarun Bhan
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
Keith Banhazl
Senior Vice President
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 Upgrades Five, Affirms Three and Downgrades One Class of MSC 2003-IQ5
