Approximately $372 Million of Structured Securities Affected
New York, August 08, 2013 -- Moody's Investors Service (Moody's) upgraded the ratings of five classes
and affirmed nine CMBS classes of J.P. Morgan Chase Commercial
Mortgage Securities Corp. Commercial Mortgage Pass-Through
Certificates, Series 2003-LN1 as follows:
Cl. A-1A, Affirmed Aaa (sf); previously on Oct
9, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed Aaa (sf); previously on Oct
9, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed Aaa (sf); previously on Jul 9,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed Aaa (sf); previously on Jul 26,
2007 Upgraded to Aaa (sf)
Cl. D, Upgraded to Aaa (sf); previously on Jul 26,
2007 Upgraded to Aa3 (sf)
Cl. E, Upgraded to Aa1 (sf); previously on Jul 26,
2007 Upgraded to A2 (sf)
Cl. F, Upgraded to A2 (sf); previously on Aug 9,
2012 Downgraded to Baa3 (sf)
Cl. G, Upgraded to Baa1 (sf); previously on Aug 9,
2012 Downgraded to Ba2 (sf)
Cl. H, Upgraded to B1 (sf); previously on Aug 9,
2012 Downgraded to B3 (sf)
Cl. J, Affirmed Caa2 (sf); previously on Aug 9,
2012 Downgraded to Caa2 (sf)
Cl. K, Affirmed Ca (sf); previously on Aug 9,
2012 Downgraded to Ca (sf)
Cl. L, Affirmed C (sf); previously on Aug 9, 2012
Downgraded to C (sf)
Cl. M, Affirmed C (sf); previously on Sep 22,
2011 Downgraded to C (sf)
Cl. X-1, Affirmed Ba3 (sf); previously on Feb
22, 2012 Downgraded to Ba3 (sf)
RATINGS RATIONALE
The upgrades are due primarily to increased credit support from paydown
and amortization, plus the expectation of future paydown from high-quality
loans which are scheduled to mature in the coming months. Over
70% of the current loan balance is due to mature before year-end
2013. Of the loans with upcoming maturities, the majority
have debt yields, DSCRs and LTVs which meet or exceed levels typically
required for financing in the current marketplace. Additionally,
nearly one-third of the maturing loan balance is represented by
defeased loans.
The affirmations of the investment grade P&I 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 affirmations of the below-investment grade classes are due
to Moody's expected loss remaining within a range commensurate with
the in-place 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.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for rated 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 rating action reflects a base expected loss of approximately 6.0%
of the current deal balance. At last review, Moody's base
expected loss was approximately 4.6%. Moody's
base expected loss plus realized losses represents 4.6%
of the original securitized deal balance compared to 5.7%
at Moody's last 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.
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.
The principal methodology used in this rating was "Moody's Approach to
Rating U.S. CMBS Conduit Transactions" published in September
2000. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
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.
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 30
compared to a Herf of 49 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 August
9, 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 July 15, 2013 distribution date, the transaction's
aggregate certificate balance has decreased by 70% to $372
million from $1.26 billion at securitization. The
Certificates are collateralized by 71 mortgage loans ranging in size from
less than 1% to 8% of the pool, with the top ten loans
(excluding defeasance) representing 30% of the pool. The
pool contains no loans with investment-grade credit assessments.
Twelve loans, representing approximately 25% of the pool,
are defeased and are collateralized by U.S. Government securities.
Forty-eight loans, representing 55% 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.
Seven loans have liquidated from the pool, contributing to an aggregate
realized loss to the trust of $33 million. Loans that were
liquidated from the pool averaged a 58% loss severity. As
of the last reporting date, two loans, representing 3%
of the pool, are in special servicing. Since the last reporting
date, an additional loan, the Senate Plaza Loan ($11
million -- 3% of the pool) was transferred to the special
servicer for maturity default. Inclusive of the Senate Plaza Loan,
Moody's estimates an aggregate $12 million loss (52% expected
loss) for all specially serviced loans.
Moody's has assumed a high default probability for four poorly-performing
loans representing 10% of the pool. Moody's analysis attributes
to these troubled loans an aggregate $6 million loss (16%
expected loss severity based on a 50% probability default).
Moody's was provided with full-year 2011 operating results for
96% of the performing pool. Excluding troubled and specially
serviced loans, Moody's weighted average LTV is 80%,
the same as at Moody's last review. Moody's net cash flow
reflects a weighted average haircut of 11.3% to the most
recently available net operating income. Moody's value reflects
a weighted average capitalization rate of 9.4%.
Excluding troubled and specially serviced loans, Moody's actual
and stressed DSCRs are 1.48X and 1.38X, respectively,
compared to 1.56X and 1.42X 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 conduit loans represent 18% of the pool.
The largest loan is the Sheraton Inner Harbor Hotel Loan ($28 million
-- 8% of the pool), which is secured by a 337-unit
full-service hotel in downtown Baltimore, Maryland.
Property financial performance has been stable since Moody's last
review. The loan had a scheduled maturity date of October 15,
2013. Moody's current LTV and stressed DSCR are 112% and
1.06X, respectively, compared to 113% and 1.06X
at last review.
The second largest loan is the Chasewood Office Portfolio Loan ($21
million -- 6% of the pool). The loan is secured by
two suburban office buildings located in the FM 1960 area of northwest
Houston, Texas. The property was 65% leased as of
year-end 2012 compared to 70% at Moody's last review
and 93% at securitization. Property performance has suffered
since 2011 when a tenant occupying approximately 25% of the net
rentable area vacated. The space has since been only partially
backfilled with new tenants. Since Moody's last review,
the largest tenant, CDM Resources Management, renewed its
lease through June 2020. CDM's prior lease expired in August
2012. Despite this positive development, Moody's continues
to view this as a troubled loan due to ongoing high vacancy at the property
and high vacancy in the larger FM 1960 submarket. Moody's current
LTV and stressed DSCR are 140% and 0.75X, respectively,
compared to 135% and 0.79X at last review.
The third largest loan is the Piilani Shopping Center Loan ($17
million -- 5% of the pool). The loan is secured by
a 66,000 square-foot retail center in Kihei, Hawaii.
Property performance has improved markedly since securitization.
The retail center was 100% leased as of March 2013 compared to
94% at securitization. Moody's current LTV and stressed
DSCR are 59% and 1.61X, respectively, compared
to 71% and 1.33X 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.
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.
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
Sandra Ruffin
VP - Senior Credit Officer
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 and Affirms Nine CMBS Classes of JPMCC 2003-LN1
