Approximately $92.5 Million of Structured Securities Affected
New York, February 03, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of one class and
affirmed five classes of Morgan Stanley Capital I Inc., Commercial
Mortgage Pass-Through Certificates, Series 1998-CF1
Cl. X Certificate, Affirmed at Aaa (sf); previously
on Aug 25, 1998 Assigned Aaa (sf)
Cl. D Certificate, Affirmed at Aaa (sf); previously
on Apr 15, 2009 Upgraded to Aaa (sf)
Cl. E Certificate, Upgraded to Aa3 (sf); previously
on Apr 15, 2009 Upgraded to A2 (sf)
Cl. F Certificate, Affirmed at B2 (sf); previously on
Apr 15, 2009 Upgraded to B2 (sf)
Cl. G Certificate, Affirmed at C (sf); previously on
Dec 23, 2003 Downgraded to C (sf)
CL H Certificate, Affirmed at C (sf); previously on Dec 23,
2003 Downgraded to C (sf)
The upgrade is due to overall improved pool performance and a significant
increase in subordination levels since Moody's last review.
The 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
8.0% of the current balance, the same as at last review.
Moody's stressed scenario loss is 10.1% 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 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 Rating Fusion Transactions" published in July 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 17
compared to 22 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 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 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 January 18, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 92% to $92.5
million from $1.1 billion at securitization. The
Certificates are collateralized by 44 mortgage loans ranging in size from
less than 1% to 10% of the pool, with the top ten
loans representing 57% of the pool. Five loans, representing
10% 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.
Nine loans, representing 15% 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
Twenty-four loans have been liquidated from the pool since securitization,
resulting in a $77.8 million loss. At last review
the pool had experienced an aggregate $76.5 million loss.
Two loans, representing 7% of the pool, are currently
in special servicing. Moody's has estimated an aggregate
$5.5 million loss (90% expected loss on average)
for the two specially serviced loans.
Moody's has assumed a high default probability for three poorly
performing loans representing 5% of the pool and has estimated
a $534,000 loss (13% expected loss based on a 50%
probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 84%
of the pool's non-defeased loans and partial year 2010 results
for 61% of the pool's non-defeased loans. Excluding
specially serviced and troubled loans, Moody's weighted average
LTV is 56% compared to 74% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 10.2%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 10.1%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 2.27X and 2.18X, respectively,
compared to 1.42X and 1.81X 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 26% of the pool
balance. The largest loan is the Bristol Market Place Loan ($9.4
million -- 10.2% of the pool), which is secured
by a 99,256 square foot (SF) retail center located in Santa Ana,
California. Financial performance has declined due to lower occupancy
at 90% as of September 2010 versus 92% at last review.
Recent financial performance suggests improved financial performance coupled
with 5% amortization since last review. Moody's LTV
and stressed DSCR are 72% and 1.44X, respectively,
compared to 71% and 1.44X at last review.
The second largest loan is the Preston Place Apartments Loan ($7.8
million -- 8.5% of the pool), which is secured
by a 239-unit apartment complex located in Plano, Texas.
Financial performance has improved since last review due to higher occupancy.
The property was 93% leased as of September 2010 compared to 88%
at last review. The loan has amortized 15% since last review.
Moody's LTV and stressed DSCR are 36% and 3.0X,
respectively, compared to 50% and 2.18X at last review.
The third largest loan is the Van Dorn Station Loan ($7.1
million -- 7.7% of the pool), which is secured
by a 74,500 SF retail center located in Alexandria, Virginia
adjacent to a Metro stop. The property's financial performance
improved slightly since last review despite a 2% drop in occupancy
to 93% as of December 2009 from 95% as of December 2008.
There are presently re-leasing efforts underway to fill the former
Comcast space which expired December 2010. This loan has amortized
5% since last review. Moody's LTV and stressed DSCR
are 42% and 2.6X, respectively, compared to
50% and 2.4X 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 and proprietary Moody's investors
Service information and confidential and proprietary Moody's Analytics
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.
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 and Affirms Five CMBS Classes of MSC 1998-CF1
250 Greenwich Street
New York, NY 10007