Approximately $87.5 Million of Structured Securities Affected
New York, January 13, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of one class,
downgraded one class and affirmed four classes of Paine Webber Mortgage
Acceptance Corporation V, Commercial Mortgage Pass-Through
Certificates, Series 1999-C1 as follows:
Cl. X, Affirmed at Aaa (sf); previously on Jun 7,
1999 Definitive Rating Assigned Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Jul 9,
2007 Upgraded to Aaa (sf)
Cl. E, Upgraded to Aaa (sf); previously on Feb 28,
2008 Upgraded to Aa1 (sf)
Cl. F, Affirmed at Ba1 (sf); previously on Feb 28,
2008 Upgraded to Ba1 (sf)
Cl. G, Affirmed at Caa2 (sf); previously on Jan 29,
2004 Downgraded to Caa2 (sf)
Cl. H, Downgraded to C (sf); previously on Jan 29,
2004 Downgraded to Ca (sf)
RATINGS RATIONALE
The downgrade is due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans and interest shortfalls. The upgrade is due to a significant
increase in subordination from paydowns and amortization. The affirmations
are due to key parameters, including Moody's loan to value
(LTV) ratio and Moody's stressed debt service coverage ratio (DSCR)
remaining within acceptable ranges. The significant decline in
loan diversity, as measured by the Herfindahl Index (Herf),
since last review but has been offset by increased subordination.
Based on our current base expected loss, the credit enhancement
levels for the affirmed classes are sufficient to maintain their existing
ratings.
Moody's rating action reflects a cumulative base expected loss of
5.3% of the current balance. At last review,
Moody's cumulative base expected loss was 1.5%.
Moody's stressed scenario loss is 11.5% 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.
Due to the high level of credit subordination and defeasance, it
is unlikely that investment grade classes would be downgraded even if
losses are higher than Moody's expected base.
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 2010
and 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 these ratings were "CMBS: Moody's
Approach to Rating U.S. Conduit Transactions" published
in September 2000, "Moody's Approach to Rating Large Loan/Single
Borrower Transactions" published in July 2000 and "CMBS: Moody's
Approach to Rating Credit Tenant Lease (CTL) Backed Transactions" published
in October 1998.
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 and the CMBS Large Loan Model v 8.0. 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 underlying ratings is melded with
the conduit model credit enhancement into an overall model result.
Fusion loan credit enhancement is based on the credit estimate 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
the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 14
compared to 58 at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs the
large loan/single borrower methodology. This methodology uses the
excel-based Large Loan Model v 8.0. 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.
For deals that include a pool of credit tenant loans, Moody's
currently uses a Gaussian copula model, incorporated in its public
CDO rating model CDOROMv2.6 to generate a portfolio loss distribution
to assess the ratings. Under Moody's CTL approach,
the rating of a transaction's certificates is primarily based on
the senior unsecured debt rating (or the corporate family rating) of the
tenant, usually an investment grade rated company, leasing
the real estate collateral supporting the bonds. This tenant's
credit rating is the key factor in determining the probability of default
on the underlying lease. The lease generally is "bondable",
which means it is an absolute net lease, yielding fixed rent paid
to the trust through a lock-box, sufficient under all circumstances
to pay in full all interest and principal of the loan. The leased
property should be owned by a bankruptcy-remote, special
purpose borrower, which grants a first lien mortgage and assignment
of rents to the securitization trust. The dark value of the collateral,
which assumes the property is vacant or "dark", is then
examined to determine a recovery rate upon a loan's default.
Moody's also considers the overall structure and legal integrity
of the transaction. The credit enhancement levels are melded with
the large loan model credit enhancement into an overall model result.
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 February 28, 2008.
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 did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
DEAL PERFORMANCE
As of the December 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 87% to $89.6
million from $704.8 million at securitization. The
Certificates are collateralized by 31 mortgage loans ranging in size from
less than 1% to 12% of the pool, with the top ten
loans representing 75% of the pool. The pool includes five
loans, representing 34% of the pool, backed by credit
tenant leases (CTL). Five loans representing 6% of the pool
have defeased and are collateralized with U.S. Government
securities.
Seven loans, representing 9% 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 from the pool since securitization,
resulting in an aggregate $9.8 million loss (33%
loss severity on average). Two loans, representing 9%
of the pool, are currently in special servicing. The largest
specially serviced loan is Heatherwood Apartments Loan ($5.2
million -- 5.8% of the pool), which is secured
by a 133 unit multifamily property located in Houston, Texas.
The loan transferred into special servicing in May, 2009 due to
maturity default. The loan is current. The other specially
serviced loan is secured by an industrial property. The master
servicer has recognized an aggregate $1.1 million appraisal
reduction for one of the specially serviced loans. Moody's
has estimated an aggregate $3.1 million loss for the specially
serviced loans (38% expected loss on average).
Moody's has assumed a high default probability for one poorly performing
loans representing 1% of the pool and has estimated an aggregate
$500,000 loss (38% expected loss based on a 75%
probability default) for the troubled loan.
Based on the most recent remittance statement, Classes H and I have
experienced cumulative interest shortfalls totaling $2.2
million. Moody's anticipates that the pool will continue to experience
interest shortfalls because of the exposure to specially serviced loans.
Interest shortfalls are caused by special servicing fees, including
workout and liquidation fees, appraisal subordinate entitlement
reductions (ASERs), extraordinary trust expenses and non-advancing
by the master servicer based on a determination of non-recoverability.
Moody's was provided with full year 2009 operating results for 79%
of the pool. Excluding specially serviced, troubled loans
and CTL's, Moody's weighted average LTV is 66%
compared to 76% at last review. Moody's net cash flow
reflects a weighted average haircut of 20% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 10.3%.
Excluding specially serviced and troubled loans and CTLs, Moody's
actual and stressed DSCRs are 1.48X and 2.28X, respectively,
compared to 1.50X and 1.71X 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 CTL component consists of five loans, totaling 34% of
the pool, secured by properties leased to five tenants. The
largest exposures are Beckman Coulter Inc. ($10.6
million -- 11.8% of the pool; senior unsecured
rating: Baa3 -- negative outlook) and Regal Cinemas Corporation
($7.3 million -- 8.1% of the pool;
backed senior unsecured rating: B2 -- stable outlook).
Four of the tenants have a Moody's rating and Moody's completed updated
credit estimates for the non-Moody's rated tenant. Moody's
modeled a bottom-dollar weighted average rating factor (WARF) of
1,795 compared to 1,512 at last review. WARF is a measure
of the overall quality of a pool of diverse credits. The bottom-dollar
WARF is a measure of the default probability within the pool.
The top three performing conduit loans represent 28% of the pool
balance. The largest loan is the Kelsey Hayes Loan ($8.4
million -- 9.3% of the pool), which is secured
by a 180,000 square foot industrial and R&D complex located
in Livonia, Michigan. The complex was 100% leased
as of June 2010, the same as last review. The single tenant
is Kelsey Hayes, which occupies the entirety of the property through
April 2014. Kelsey Hayes is a subsidiary of TRW Automotive Inc.
(senior unsecured rating: Ba2 -- stable outlook). The
loan has passed its anticipated repayment date and is hyperamortizing.
Moody's LTV and stressed DSCR are 82% and 1.39X, respectively,
compared to 84% and 1.23X at last review.
The second largest loan is the Heathermoor Loan ($8.3 million
-- 9.2% of the pool), which is secured by a 133
unit multifamily property located in Columbus, Ohio. The
property was 91% leased as of November 2010 compared to 98%
at last review. Despite the decline in occupancy, net operating
income has improved since last review. The loan matures in June
2011. Moody's LTV and stressed DSCR are 79% and 1.30X,
respectively, compared to 92% and 1.09X at last review.
The third largest loan is the Clinton Place Loan ($8.2 million
-- 9.1% of the pool), which is secured by a 133
unit multifamily property located in Clinton Township, Michigan.
The property was 95% leased as of November 2010 compared to 97%
at last review. Net operating income has improved since last review.
The loan matures in June 2011. Moody's LTV and stressed DSCR are
86% and 1.20X, respectively, compared to 103%
and 1.00X 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 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.
New York
Seth Anspach
Associate 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, Downgrades One and Affirms Four CMBS Classes of PMAC 1999-C1
