Approximately $34.8 Million of Structured Securities Affected
New York, February 03, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of one class and
placed the class on watch for possible downgrade and affirmed three classes
of Bear Stearns Commercial Mortgage Securities Inc., Commercial
Mortgage Pass-Through Certificates, Series 1998-C1
as follows:
Cl. E, Upgraded to Aaa (sf) and Placed Under Review for Possible
Downgrade; previously on Apr 1, 2009 Upgraded to Aa2 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Jun 29,
1998 Assigned Ba2 (sf)
Cl. H, Affirmed at B1 (sf); previously on May 25,
2006 Downgraded to B1 (sf)
Cl. I, Affirmed at C (sf); previously on May 25,
2006 Downgraded to C (sf)
RATINGS RATIONALE
Moody's rating action did not address the ratings of Classes B,
C, D and X, which are all currently rated Aaa, on review
for possible downgrade. These classes were placed on review on
January 19, 2011. KeyCorp Real Estate Capital Markets,
Inc. (KRECM) is the master servicer on this transaction and deposits
collection, escrow and other accounts in KeyBank, National
Association (Keybank). Keybank no longer meets Moody's rating
criteria for an eligible depository account institution for Aaa and Aa1
rated securities. Moody's is reviewing arrangements that KeyBank
has proposed, and that it may propose, to mitigate the incremental
risk indicated by the lower rating of the depository account institution,
so as possibly to allow the classes on review to maintain their current
ratings.
The upgrade of Class E is due to overall improved pool performance and
a significant increase in subordination levels due to loan paydowns and
amortization. However, given that KeyBank does not meet Moody's
rating criteria as an eligible despository account institution,
this place is placed on review for possible downgrade along with the transaction's
other Aaa rated classes.
The affirmations of Classes G, H and I 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
2.0% of the current balance. At last review,
Moody's cumulative base loss was 5.1%. Moody's
stressed scenario loss is 4.3% of the current balance.
Moody's provides a current list of base and stress scenario losses
for conduit and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
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 stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2011;
we expect overall a sluggish recovery in most of the world's largest
economies, returning to trend growth rate with elevated fiscal deficits
and persistent unemployment levels.
The principal methodologies used in this rating were CMBS: Moody's
Approach to Conduit Transactions" published in September 2000 and "CMBS:
Moody's Approach to Rating Large Loans/Single Borrower Transaction"
published in July 2000.
In addition to methodologies and research, Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
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 9 compared
to 10 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 April 1, 2009. 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 reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the rating.
DEAL PERFORMANCE
As of the January 18, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 80% to $146.5
million from $714.7 million at securitization. The
Certificates are collateralized by 28 mortgage loans ranging in size from
less than 1% to 14% of the pool, with the top ten
loans representing 63% of the pool. Nine loans, representing
29% of the pool, have defeased and are collateralized by
U.S. Government securities. There are no loans in
the pool with investment grade credit estimates.
Two loans, representing 3% 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.
Fourteen loans have been liquidated from the pool since securitization,
resulting in a $21.2 million loss (50% loss severity).
The pool had experienced an aggregate $20.2 million loss
at last review. There are no loans currently in special servicing.
Moody's has assumed a high default probability for the two poorly
performing loans representing 3% of the pool and has estimated
a $993,000 loss (27% expected loss based on a 61%
probability default) from these troubled loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 86% and 85%, respectively, of the
pool's non-defeased loans. Excluding specially serviced
and troubled loans, Moody's weighted average LTV is 50%
compared to 57% at Moody's prior review. Moody's
net cash flow reflects a weighted average haircut of 11.2%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.6%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 2.57X and 2.27X, respectively,
compared to 1.83X and 1.96X 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 34% of the pool
balance. The largest loan is the Mission Marketplace Loan ($19.8
million -- 13.5% of the pool), which is secured
by a 344,100 square foot (SF) retail center located in Oceanside,
California. Major tenants include Kmart, Mission Market Cinema
and Henry Markets. Financial performance has been stable since
last review. The property was 87% leased as of September
2010 versus 90% at last review. The loan has amortized 4%
since last review. Moody's LTV and stressed DSCR are 71%
and 1.37X, respectively, compared to 74% and
1.31X at last review.
The second largest loan is the Lomas Santa Fe Plaza Loan ($17.5
million -- 12.0% of the pool), which is secured
by a 214,000 SF retail center located north of San Diego in Solana
Beach, California. Although financial performance at this
property has declined since last review due to lower occupancy,
the property is performing better than Moody's expectations.
At last review Moody's analysis reflected a stressed cash flow due
to concerns about potential income volatility caused by upcoming lease
expirations. The center was 94% leased as September of 2010
versus 98% at last review. The loan has amortized 4%
since last review. Moody's LTV and stressed DSCR are 37%
and 2.66X, respectively, compared to 44% and
2.24X at last review.
The third largest loan is the Torrey Reserve South Court Loan ($12.9
million -- 8.8% of the pool), which is secured
by a 130,641 SF office building located in San Diego, California.
Although financial performance at this property has declined since last
review due to lower occupancy, the property is performing better
than Moody's expectations. At last review Moody's analysis
reflected a stressed cash flow due to concerns about potential income
volatility caused by upcoming lease expirations. The property was
86% leased as of September 2010 versus 90% at last review.
This loan has amortized 4% since last review. The loan is
on the Master Servicer's watchlist due to lower occupancy.
Moody's LTV and stressed DSCR are 48% and 2.33X,
respectively, compared to 54% and 2.11X at last review.
REGULATORY DISCLOSURES
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 and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose 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.
New York
Gregory Reed
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Upgrades One Class and Places the Class on Watch for Possible Downgrade and Affirms Three CMBS Classes of BSCMS 1998-C1
