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Rating Action:

Moody's Upgrades Four and Affirms Seven CMBS Classes of CSFB 2004-C4

Global Credit Research - 18 Oct 2013

Approximately $504 Million of Structured Securities Affected

New York, October 18, 2013 -- Moody's Investors Service (Moody's) upgraded the CMBS ratings of four classes and affirmed seven classes of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2004-C4 as follows:

Cl. A-1-A, Affirmed Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

Cl. A-6, Affirmed Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

Cl. A-J, Upgraded to Aaa (sf); previously on Mar 9, 2011 Confirmed at Aa1 (sf)

Cl. B, Upgraded to A1 (sf); previously on Feb 9, 2011 Downgraded to A3 (sf)

Cl. C, Upgraded to Baa2 (sf); previously on Feb 9, 2011 Downgraded to Ba1 (sf)

Cl. D, Upgraded to Ba1 (sf); previously on Feb 9, 2011 Downgraded to Ba3 (sf)

Cl. E, Affirmed B3 (sf); previously on Feb 9, 2011 Downgraded to B3 (sf)

Cl. F, Affirmed Caa3 (sf); previously on Feb 9, 2011 Downgraded to Caa3 (sf)

Cl. G, Affirmed C (sf); previously on Feb 9, 2011 Downgraded to C (sf)

Cl. A-X, Affirmed Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

Cl. A-Y, Affirmed Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)

RATINGS RATIONALE

The upgrades are due to an increase in credit support from loan payoffs and amortization. The deal has paid down 32% since last review.

The affirmations to Classes A-1-A and A-6 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 Classes A-1-A and A-6 are sufficient to maintain their current ratings.

Classes E, F and G are affirmed because the classes' current ratings reflects Moody's expected losses for those classes.

The ratings of the interest-only (IO) classes, Class A-X and A-Y, are consistent with the expected credit performance of their referenced classes and thus are affirmed.

Depending on the timing of loan payoffs and the severity and timing of losses from specially serviced loans, the credit enhancement level for the 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 cumulative base expected loss of 3.3% of the current pooled balance compared to 6.2% at last review. Cumulative realized losses plus Moody's base expected loss is now 5.0% of the original deal balance compared to 5.3% at 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.

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 extent of growth in the current macroeconomic environment given the weak pace of recovery in the commercial real estate property markets. Commercial real estate property values are continuing to move in a modestly positive direction along with a rise in investment activity and stabilization in core property type performance. Limited new construction and moderate job growth have aided this improvement. However, a consistent upward trend will not be evident until the volume of investment activity steadily increases for a significant period, non-performing properties are cleared from the pipeline, and fears of a Euro area recession are abated.

The methodologies used in this rating were "Moody's Approach to Rating U.S. CMBS Conduit Transactions", published in September 2000, 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 2.64 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 ratings are determined by a committee process that considers both quantitative and qualitative factors. Therefore, the rating outcome may differ from the model output.

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 10, compared to 11 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 8.6 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.

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 January 10, 2013. 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 September 17, 2013 distribution date, the transaction's aggregate pooled certificate balance has decreased by 56% to $504 million from $1.1 billion at securitization. The Certificates are collateralized by 113 mortgage loans ranging in size from less than 1% to 16% of the pool, with the top ten loans representing 52% of the pool. Nine loans, representing 25% of the pool, have been defeased and are collateralized with U.S. Government Securities. Forty-nine residential cooperative (co-op) loans, representing 16% of the pool, have a Aaa credit assessment.

Twenty-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) 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.

Ten loans have been liquidated at a loss from the pool, resulting in an aggregate realized loss of $41 million (27% average loss severity). Two loans, representing less than 1% of the pool, are currently in special servicing.

The servicer recognized a $230 thousand appraisal reduction for one of the two specially serviced loans. Moody's has estimated a $2.5 million loss (61% expected loss) for the two specially serviced loans.

Moody's has assumed a high default probability for four poorly performing loans representing 6% of the pool and has estimated a $5 million loss (15% expected loss based on a 50% probability default) from the troubled loans.

Moody's was provided with full year 2012 and partial year 2013 operating results for 92% and 80% of the pool's non-defeased loans, respectively. Moody's weighted average conduit LTV is 88% compared to 89% at Moody's prior review. The conduit portion of the pool excludes specially serviced, troubled and defeased and co-op loans. Moody's net cash flow reflects a weighted average haircut of 13% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.1%.

Moody's actual and stressed conduit DSCRs are 1.33X and 1.21X, respectively, compared to 1.33X and 1.19X 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 loans represent 24% of the pool. The largest loan is the Brunswick Square Loan ($77 million -- 15.3%), which is secured by the borrower's interest in a 769,000 square foot (SF) regional mall located in East Brunswick, New Jersey. The mall is anchored by Macy's and JC Penney. Both anchors own their space. The 302,000 SF of collateral was 97% leased as of June 2013 compared to 98% at last review. The loan matures in August 2014. Moody's LTV and stressed DSCR are 109% and 0.87X, respectively, compared to 106% and 0.89X at last review.

The second largest loan is the Lake Zurich Portfolio Loan ($29 million -- 5.7% of the pool), which is secured by two cross-collateralized and cross-defaulted retail centers located in Lake Zurich, Illinois. The two centers contain 363,000 SF. The portfolio was 90% leased as of June 2013 compared to 88% at last review. Both loans are full recourse to the sponsor. Moody's LTV and stressed DSCR are 92% and 1.09X, respectively, compared to 98% and 1.02X at last review.

The third largest loan is the Marysville Town Center Loan ($14 million -- 2.7% of the pool), which is secured by a 226,000 SF grocer anchored shopping center in Marysville, Washington. The property has been on the watchlist since April 2012. The collateral is 90% leased as of June 2013, but not all tenants were paying a base rent. The loan matures in November 2014. Moody's identified this loan as a troubled loan due to refinance concerns. Moody's LTV and stressed DSCR were 145% and 0.65X, respectively, compared to 125% and 0.76X 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.

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.

Peter Simon
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 Upgrades Four and Affirms Seven CMBS Classes of CSFB 2004-C4
No Related Data.

 

© 2014 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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