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Rating Action:

Moody's Upgrades Six and Affirms Two Classes of MSC 2003-IQ5

11 Sep 2015

Approximately $25 Million of Structured Securities Affected

New York, September 11, 2015 -- Moody's Investors Service has upgraded the ratings on six classes and affirmed the ratings on two classes in Morgan Stanley Capital I Trust, Series 2003-IQ5 as follows:

Cl. G, Affirmed Aaa (sf); previously on Sep 18, 2014 Upgraded to Aaa (sf)

Cl. H, Upgraded to Aaa (sf); previously on Sep 18, 2014 Upgraded to Aa2 (sf)

Cl. J, Upgraded to Aa3 (sf); previously on Sep 18, 2014 Upgraded to A2 (sf)

Cl. K, Upgraded to Baa1 (sf); previously on Sep 18, 2014 Upgraded to Baa3 (sf)

Cl. L, Upgraded to Ba3 (sf); previously on Sep 18, 2014 Affirmed B1 (sf)

Cl. M, Upgraded to B1 (sf); previously on Sep 18, 2014 Affirmed B2 (sf)

Cl. N, Upgraded to B3 (sf); previously on Sep 18, 2014 Affirmed Caa1 (sf)

Cl. X-1, Affirmed B2 (sf); previously on Sep 18, 2014 Downgraded to B2 (sf)

RATINGS RATIONALE

The ratings on the P&I classes were upgraded based primarily on an increase in credit support resulting from loan paydowns and amortization. The deal has paid down 28% since Moody's last review.

The rating on the P&I class was affirmed because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges.

The rating on the IO class was affirmed based on the credit performance (or the weighted average rating factor or WARF) of the referenced classes.

Moody's rating action reflects a base expected loss of 1.6% of the current balance, compared to 11.0% at Moody's last review. Moody's base expected loss plus realized losses is now 0.7% of the original pooled balance, same as at the last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.

Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.

Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.

METHODOLOGY UNDERLYING THE RATING ACTION

The methodologies used in these ratings were " Approach to Rating US and Canadian Conduit/Fusion CMBS" published in December 2014, and "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The Credit Rating for MSC 2003-IQ5 was assigned in accordance with Moody's existing Credit Rating Methodology entitled "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000. Please note that on August 6, 2015, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Credit Rating Methodology for the Large Loan and Singe Asset/Single Borrowers CMBS. If the revised Credit Rating Methodology is implemented as proposed, the Credit Rating on MSC 2003-IQ5 may be positively affected. Please refer to Moody's Request for Comment, titled "Proposed Enhancements to Our Approach to Rating Large Loan and Single Asset/Single Borrower CMBS" for further details regarding the implications of the proposed Credit Rating Methodology revisions on certain Credit Ratings.

DESCRIPTION OF MODELS USED

Moody's review used the excel-based CMBS Conduit Model, which it uses for both conduit and fusion transactions. Credit enhancement levels for conduit loans are driven by property type, Moody's actual and stressed DSCR, and Moody's property quality grade (which reflects the capitalization rate Moody's uses to estimate Moody's value). Moody's fuses the conduit results with the results of its analysis of investment grade structured credit assessed loans and any conduit loan that represents 10% or greater of the current pool balance.

Moody's uses a variation of Herf to measure the diversity of loan sizes, 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 two, compared to three at Moody's last review.

When the Herf falls below 20, Moody's uses the excel-based Large Loan Model and then reconciles and weights the results from the conduit and large loan 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. Moody's also further adjusts these aggregated proceeds for any pooling benefits associated with loan level diversity and other concentrations and correlations.

DEAL PERFORMANCE

As of the August 17, 2015 distribution date, the transaction's aggregate certificate balance has decreased by 96% to $27.9 million from $778.8 million at securitization. The certificates are collateralized by 15 mortgage loans ranging in size from less than 1% to 62% of the pool, with the top ten loans constituting 96% of the pool. One loan, constituting 62% of the pool, has an investment-grade structured credit assessment.

Five loans, constituting 18.6% of the pool, are on the master servicer's watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.

Six loans have been liquidated from the pool, resulting in an aggregate realized loss of $5 million (for an average loss severity of 21%). No loans are currently in special servicing.

Moody's received full year 2013 operating results for 87% of the pool, and full or partial year 2014 operating results for 93% of the pool. Moody's weighted average conduit LTV is 51%, compared to 62% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased and CTL loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 14% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 8.7%.

Moody's actual and stressed conduit DSCRs are 1.15X and 3.08X, respectively, compared to 1.07X and 2.45X at the last review. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stress rate the agency applied to the loan balance.

The loan with a structured credit assessment is the 3 Times Square Loan ($17.4 million -- 62.2% of the pool), which represents a participation interest in a $83 million A-Note. The loan is collateralized by the sponsor's leasehold interest in an 880,000 square foot (SF) Class A office tower located in the Times Square district of Midtown Manhattan. The largest tenant, Thomson Reuters Corporation, leases 78% of the property's net rentable area (NRA) through November 2021. The loan is fully amortizing and matures in November 2021. Moody's structured credit assessment and stressed DSCR are aaa (sca.pd) and 4.93X, respectively, compared to aaa (sca.pd) and 4.43X at the last review.

The top three conduit loans represent 20% of the pool balance. The largest loan is the Arbrook Oaks Shopping Center Loan ($3.3 million -- 11.8% of the pool), which is secured by a 50,000 SF shadow anchored retail center located in Arlington, Texas. As of March 2015, the property was 66% leased compared to 69% at Moody's prior review. Moody's LTV and stressed DSCR are 83% and 1.31X, respectively, compared to 104% and 1.04X at the last review.

The second largest loan is the San Pedro Towne Center Loan ($1.4 million -- 5.1% of the pool), which is secured by a 26,000 SF unanchored retail center located in San Antonio, Texas. The property is currently 100% occupied. Moody's LTV and stressed DSCR are 48% and 2.31X, respectively, compared to 53% and 2.08X at the last review.

The third largest loan is the Parham Road Office Loan ($0.97 million -- 3.5% of the pool), which is secured by a 25,000 SF Class B suburban office building in Richmond, Virginia. As of December 2014, the property was 94% leased compared to 61% at the prior review. Moody's LTV and stressed DSCR are 79% and 1.44X, respectively, compared to 105% and 1.09X at the last review.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's did not use any stress scenario simulations in its analysis.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sini Gomes
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Keith Banhazl
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Upgrades Six and Affirms Two Classes of MSC 2003-IQ5
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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