Approximately $20 Million of Structured Securities Affected
New York, September 01, 2016 -- Moody's Investors Service (Moody's) has upgraded the ratings of five classes
and affirmed three classes in Morgan Stanley Capital I Trust 2003-IQ5
as follows:
Cl. G, Affirmed Aaa (sf); previously on Sep 11,
2015 Affirmed Aaa (sf)
Cl. H, Affirmed Aaa (sf); previously on Sep 11,
2015 Upgraded to Aaa (sf)
Cl. J, Upgraded to Aaa (sf); previously on Sep 11,
2015 Upgraded to Aa3 (sf)
Cl. K, Upgraded to Aaa (sf); previously on Sep 11,
2015 Upgraded to Baa1 (sf)
Cl. L, Upgraded to A2 (sf); previously on Sep 11,
2015 Upgraded to Ba3 (sf)
Cl. M, Upgraded to Ba1 (sf); previously on Sep 11,
2015 Upgraded to B1 (sf)
Cl. N, Upgraded to B1 (sf); previously on Sep 11,
2015 Upgraded to B3 (sf)
Cl. X-1, Affirmed B2 (sf); previously on Sep
11, 2015 Affirmed B2 (sf)
RATINGS RATIONALE
The ratings on the P&I classes were upgraded primarily due to an increase
in credit support since Moody's last review, resulting from
paydowns and amortization, as well as Moody's expectation
of additional increases in credit support resulting from the high rate
of amortization in the pool, as all of the remaining loans in the
pool are fully amortizing.
The ratings on the P&I classes 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 was affirmed because the credit performance
(or the weighted average rating factor or WARF) of the referenced classes
is consistent with Moody's expectations.
Moody's rating action reflects a base expected loss of 0.0%
of the current balance compared to 1.6% at Moody's
last review. Moody's base expected loss plus realized losses is
now 0.6% of the original pooled balance, compared
to 0.7% at the last review. Moody's does not
anticipate losses from the remaining collateral in the current environment.
However, over the remaining life of the transaction, losses
may emerge from macro stresses to the environment and changes in collateral
performance. Our ratings reflect the potential for future losses
under such conditions. 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 RATINGS:
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 principal methodology used in these ratings was "Moody's Approach
to Rating Large Loan and Single Asset/Single Borrower CMBS" published
on October 2015. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
DESCRIPTION OF MODELS USED
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 2,
unchanged from Moody's last review.
Due to the very low Herf score, Moody's used the excel-based
Large Loan Model 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 August 15, 2016 distribution date, the transaction's
aggregate certificate balance has decreased by 17% to $23
million from $779 million at securitization. The certificates
are collateralized by 12 mortgage loans ranging in size from less than
1% to 65% of the pool, with the top ten loans (excluding
defeasance) constituting 99% of the pool. The largest loan
in the pool has an investment-grade structured credit assessment.
The pool contains no defeased loans.
Five loans, constituting 24% 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.
Six loans have been liquidated from the pool, contributing to an
aggregate realized loss of $5 million (for an average loss severity
of 21%). The pool currently contains no loans in special
servicing.
Moody's received full year 2015 operating results for 100% of the
pool, and partial year 2016 operating results for 42% of
the pool. Moody's weighted average conduit LTV is 48%,
compared to 57% 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 14.5% to the most recently available net operating income
(NOI). Moody's value reflects a weighted average capitalization
rate of 9.9%.
Moody's actual and stressed conduit DSCRs are 1.13X and 3.60X,
respectively, compared to 1.11X and 3.01X 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 also the largest loan
in the pool. The 3 Times Square Loan ($15 million --
65% of the pool), represents a participation interest in
the senior component of a $73 million mortgage loan and is secured
by the leasehold interest in a Class A office property located in Midtown
Manhattan. The property was 100% leased as of March 2016,
unchanged from the prior year. The loan is fully amortizing and
is set to mature just after the scheduled lease expiration of the major
tenants occupying the property. Moody's structured credit assessment
and stressed DSCR are aaa (sca.pd) and >4.00X.
The second largest loan is the Arbrook Oaks Loan ($3 million --
13% of the pool). The loan is secured by a 50,000
square foot shadow-anchored retail property located in Arlington,
Texas. The loan is currently on the watchlist for low DSCR.
The largest tenant which had a lease set to expire in September 2016 recently
signed a 10-year extension. The property was 78%
leased as of March 2016, compared to 66% the prior year.
The loan is fully amortizing. Moody's LTV and stressed DSCR are
72% and 1.50X, respectively, compared to 83%
and 1.31X at the last review.
The third largest loan is the San Pedro Towne Center Loan ($1 million
-- 6% of the pool). The loan is secured by a 26,000
square foot unanchored retail center in San Antonio, Texas.
The loan is currently on the watchlist. The property was 89%
occupied as of December 2015, compared to 100% occupied the
prior year. The loan is fully amortizing. Moody's LTV and
stressed DSCR are 43% and, 2.57X, respectively,
compared to 48% and 2.31X at the last review.
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.
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 credit rating action on the support provider and in relation to
each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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
Asst Vice President - 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
Associate Managing Director
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
