Approximately $28.4 Million of Structured Securities Affected
New York, March 30, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of one class and
affirmed two classes of Heller Financial Commercial Mortgage Asset Corp.,
Mortgage Pass-Through Certificates, Series 1999-PH1
Cl. X, Affirmed at Aaa (sf); previously on May 27,
1999 Definitive Rating Assigned Aaa (sf)
Cl. F, Upgraded to Aaa (sf); previously on May 12,
2010 Upgraded to Aa1 (sf)
Cl. G, Affirmed at Aa3 (sf); previously on May 12,
2010 Upgraded to Aa3 (sf)
The upgrade is due to a significant increase in subordination levels since
Moody's last review and overall improved pool performance.
The two affirmations 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.
Moody's rating action reflects a cumulative base expected loss of
13.2% of the current balance. At last review,
Moody's cumulative based expected loss was 23.2%.
Moody's stressed scenario loss is 18.6% of the current
balance. The current cumulative base expected loss is lower than
the prior review because the current pool has fewer troubled and specially
serviced loans. Moody's provides a current list of base and
stress scenario losses for conduit and fusion CMBS transactions on moodys.com
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 sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011. The hotel and multifamily sectors are continuing
to show signs of recovery, while recovery in the office and retail
sectors will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in this rating were "CMBS: Moody's
Approach to Rating Conduit Transactions" published in September 2000 and
"Moody's Approach to Rating Large Loan/Single Tenant Transactions"
published in July 2000. Both methodologies are available on Moody's
website at www.moodys.com.
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 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 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 underlying rating 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 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 4 compared
to 5 at last 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 8.0 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.
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 received and took into account one or
more third party due diligence report(s) on the underlying assets or financial
instruments in this transaction and the due diligence report(s) had a
neutral impact on the ratings.
As of the March 15, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 92% to $88.8
million from $1.0 billion at securitization. The
Certificates are collateralized by 15 mortgage loans ranging in size from
less than 1.0% to 32% of the pool, with the
top ten loans representing 86% of the pool. Four loans,
representing 14% of the pool, have defeased and are collateralized
by U.S. Government securities. The pool includes
one loan, representing 8.4% of the pool, with
an investment grade credit estimate.
Four loans, representing 52% 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
Fourteen loans have been liquidated from the pool since securitization,
resulting in a $45.5 million loss (58% average loss
severity). The pool had experienced an aggregate $16.9
million loss at last review. There are presently three loans,
representing 16% of the pool, in special servicing.
The largest specially serviced loan is the Springfield -- Bressmer-Mendenhall
Loan ($9.6 million -- 10.8% of the pool),
which is secured by a 157,620 square foot (SF) office complex located
in Springfield, Illinois. The loan was transferred to special
servicing April 2010 due to imminent default. The State of Illinois'
procurement board denied lease renewal requests to two state agency tenants
and the office complex is now vacant. The servicer recognized an
$8.7 million appraisal reduction for this loan in February
2011. The two remaining specially serviced loans representing 5.4%
of the pool include an office building and manufactured home community.
Moody's estimates a $9.88 million loss (69%
expected loss overall) for these three specially serviced loans.
As of the most recent remittance statement date, the transaction
has experienced unpaid accumulated interest shortfalls totaling $1.8
million affecting Classes J through N. Interest shortfalls are
caused by special servicing fees, appraisal reductions, extraordinary
trust expenses and interest payment reductions due to loan modifications.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 80% of the pool. Excluding specially serviced
loans, Moody's weighted average LTV is 82% compared
to 87% at Moody's prior review. Moody's net
cash flow reflects a weighted average haircut of 10.6% to
the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 10.7%.
Excluding specially serviced loans, Moody's actual and stressed
DSCRs are 1.22X and 1.56X, respectively, compared
to 1.13X and 1.40X 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 loan with an underlying rating is the Station Plaza Office Complex
Loan ($7.5 million -- 8.4% of the pool),
which is secured by a 320,520 SF office building located in Trenton,
New Jersey. The property has been 100% leased since securitization
with 87% of the office space leased to several New Jersey state
agencies through October 2017. The loan, which matures August
2013, fully amortizes over its 15-year term and has amortized
by approximately 25% since last review. The property is
situated in downtown Trenton with excellent access to both Amtrak and
NJ Transit rail service. Moody's current credit estimate
and stressed DSCR are Aaa and 4.0X, respectively, compared
to Aaa and 3.84X at last review.
The top three performing conduit loans represent 49% of the pool
balance. The largest conduit loan is the Barefoot Landing Loan
($28.6 million -- 32.2% of the pool),
which is secured by a 244,000 SF entertainment/retail center located
in Myrtle Beach, South Carolina. As of September 2010,
the property was 89% leased versus 95% at last review.
Due to a lower DSCR, the master servicer placed the loan on the
watchlist pending a review of full year 2010 financial information.
The property's performance has declined in concert with lower occupancy.
However, since the loan has amortized 4% since last review,
Moody's LTV is slightly lower at 93% and Moody's stressed
DSCR slightly higher at 1.28X respectively, compared to 95%
and 1.25X at last review.
The second largest conduit loan is the Prestonwood Country Club Loan ($7.5
million -- 8.4% of the pool), which is secured
by two 18-hole golf courses located in Dallas and Plano,
Texas. Financial performance has declined since last review due
to lower membership fee revenue achievement and higher operating expenses.
The master servicer added this loan to the watchlist given the lower DSCR.
The loan remains current and has paid down 4% since last review.
Moody's LTV and stressed DSCR are 114% and 1.09X,
respectively, compared to 80% and 1.17X at last review.
The third largest conduit loan is the Mingo Market Place Loan ($7.4
million -- 8.4% of the pool), which is secured
by a 186,851 SF retail center located in Tulsa, Oklahoma.
The property was 100% leased as of September 2010, the same
as last review versus 84% at securitization. Financial performance
has improved since last review due to higher revenue achievement and recent
leasing activity. Moody's LTV and stressed DSCR are 58%
and 1.79X, respectively, compared to 83% and
1.04X at last review.
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 proprietary Moody's Investors
Service Information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes 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.
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Upgrades One Class and Affirms Two CMBS Classes of HFCMC 1999-PH1
250 Greenwich Street
New York, NY 10007