Approximately $78.8 Million of Structured Securities Affected
New York, November 04, 2010 -- Moody's Investors Service (Moody's) upgraded the rating of one class,
downgraded three classes and affirmed three classes of Prudential Securities
Secured Financing Corporation, Commercial Mortgage Pass-Through
Certificates, Series 1999-NRF1.
Cl. A-EC, Affirmed at Aaa (sf); previously on
Mar 25, 1999 Definitive Rating Assigned Aaa (sf)
Cl. F, Upgraded to Aaa (sf); previously on Apr 15,
2009 Upgraded to A1 (sf)
Cl. G, Affirmed at Baa3 (sf); previously on Nov 1,
2007 Upgraded to Baa3 (sf)
Cl. H, Downgraded to B2 (sf); previously on Oct 23,
2006 Upgraded to Ba2 (sf)
Cl. J, Downgraded to Caa2 (sf); previously on Mar 25,
1999 Definitive Rating Assigned B1 (sf)
Cl. K, Downgraded to C (sf); previously on Apr 15,
2009 Downgraded to Caa3 (sf)
Cl. L, Affirmed at C (sf); previously on Apr 15,
2009 Downgraded to C (sf)
The upgrade is due to the significant increase in subordination due to
loan payoffs and amortization. The pool has paid down by 54%
since Moody's last review.
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans and concerns about refinance risk associated with loans approaching
maturity in an adverse environment. Twelve loans, representing
69% of the pool, have either matured or mature within the
next six months. Three of these loans, representing 41%
of the pool, have a Moody's stressed debt service coverage (DSCR)
less than 1.00X.
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio and Moody's stressed DSCR 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
29.6% of the current balance. At last review,
Moody's cumulative base expected loss was 12.3%.
Moody's stressed scenario loss is 32.5% 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
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 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 and "CMBS: Moody's Approach
to Rating Large Loan/Single Borrower Transactions" published in
July 2000. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
In addition to methodologies and research available on moodys.com,
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 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 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 6 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 8.0 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 15, 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 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
As of the October 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 92% to $78.8
million from $928.9 million at securitization. The
Certificates are collateralized by 23 mortgage loans ranging in size from
less than 1% to 23% of the pool, with the top ten
loans representing 76% of the pool. The pool contains 14
conduit loans representing 45% of the pool. The remaining
pool consists of one defeased loan (4% of the pool) and eight specially
serviced loans (51% of the pool).
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 deal performance.
Eighteen loans have been liquidated from the pool, resulting in
an aggregate realized loss of $11.8 million (25%
loss severity overall). Eight loans, representing 51%
of the pool, are currently in special servicing. Most of
the loans were transferred to special servicing due to maturity default.
The largest specially serviced loan is Louisville Marriott East Loan ($17.9
million - 23%), which is secured by a 254 room hotel
located in suburban Louisville, Kentucky. The hotel's performance
has been negatively impacted by new competition in the area. The
loan transferred to special servicing in January 2009 for imminent default
and is now real estate owned (REO). The remaining seven specially
serviced loans are secured by a mix of property types. Moody's
has estimated an aggregate $21.9 million loss (55%
expected loss on average) for the specially serviced loans.
Based on the most recent remittance statement, Classes J through
M have experienced cumulative interest shortfalls totaling $1.8
million. Moody's anticipates that the pool will continue
to experience interest shortfalls because of the high exposure to specially
serviced loans. Interest shortfalls are caused by special servicing
fees, including workout and liquidation fees, appraisal subordinate
entitlement reductions (ASERs) and extraordinary trust expenses.
Moody's was provided with full year 2009 operating results for 90%
of the pool's performing conduit loans. Excluding specially
serviced loans, Moody's weighted average LTV is 65%
compared to 74% at Moody's prior review. Moody's
net cash flow reflects a weighted average haircut of 11% to the
most recently available net operating income. Moody's value
reflects a weighted average capitalization rate of 10.3%.
Excluding specially serviced loans, Moody's actual and stressed
DSCRs are 1.77X and 2.35X, respectively, compared
to 1.51X and 1.77X 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.
Due to the high percentage of loans in special servicing, Moody's
analysis was largely based on a loss and recovery analysis for specially
serviced loans. The performing conduit component, which represents
45% of the pool, is stable and is performing in line with
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
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.
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, Downgrades Three and Affirms Three CMBS Classes of PSSF 1999-NRF1
250 Greenwich Street
New York, NY 10007