Approximately $536.7 Million of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) upgraded the rating of three classes,
affirmed seven classes and downgraded four classes of First Union National
Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through
Certificates, Series 2002-C1 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Feb 25, 2002 Definitive Rating Assigned Aaa (sf)
Cl. IO-I, Affirmed at Aaa (sf); previously on
Feb 25, 2002 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Sep 27,
2005 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Apr 12,
2007 Upgraded to Aaa (sf)
Cl. D, Upgraded to Aaa (sf); previously on Dec 20,
2007 Upgraded to Aa1 (sf)
Cl. E, Upgraded to Aaa (sf); previously on Apr 7,
2008 Upgraded to Aa2 (sf)
Cl. F, Upgraded to Aa3 (sf); previously on Apr 7,
2008 Upgraded to A2 (sf)
Cl. G, Affirmed at Baa1 (sf); previously on Apr 7,
2008 Upgraded to Baa1 (sf)
Cl. H, Affirmed at Ba1 (sf); previously on Feb 25,
2002 Definitive Rating Assigned Ba1 (sf)
Cl. J, Affirmed at Ba2 (sf); previously on Feb 25,
2002 Definitive Rating Assigned Ba2 (sf)
Cl. K, Downgraded to B1 (sf); previously on Feb 25,
2002 Definitive Rating Assigned Ba3 (sf)
Cl. L, Downgraded to Caa1 (sf); previously on Apr 7,
2008 Downgraded to B2 (sf)
Cl. M, Downgraded to Ca (sf); previously on Apr 7,
2008 Downgraded to Caa2 (sf)
Cl. N, Downgraded to C (sf); previously on Apr 7,
2008 Downgraded to Ca (sf)
RATINGS RATIONALE
The upgrades are due to a significant increase in subordination levels
since Moody's last review and overall improved pool performance.
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans. 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
1.6% of the current balance. Moody's stressed
scenario loss is 5.1% 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 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 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 methodology used in this rating was "CMBS: Moody's
Approach to Rating Conduit Transactions" published in September 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 27
compared to 51 at last review.
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 4, 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 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 ratings.
DEAL PERFORMANCE
As of the December 13, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 26% to $536.8
million from $631.9 million at securitization. The
Certificates are collateralized by 85 mortgage loans ranging in size from
less than 1% to 6% of the pool, with the top ten loans
representing 30% of the pool. Twenty-six loans,
representing 38% of the pool, have defeased and are collateralized
by U.S. Government securities. There are no loans
with credit estimates.
Fifteen loans, representing 10% 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.
Nine loans have been liquidated from the pool since securitization,
resulting in an $18.7 million loss (53% loss severity
on average). The pool had experienced aggregate losses of $13.7
million at last review. Currently, there are no loans in
special servicing.
Moody's has assumed a high default probability for one poorly performing
loan representing 2% of the pool and has estimated a $2.6
million loss (20% expected loss based on a 50% probability
default) from this troubled loan.
Moody's was provided with full year 2009 operating results for 55%
of the pool's non-defeased loans. Excluding the troubled
loan, Moody's weighted average LTV is 78% compared
to 80% at Moody's prior review. Moody's net
cash flow reflects a weighted average haircut of 11.0% to
the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.7%.
Excluding the troubled loan, Moody's actual and stressed DSCRs
are 1.40X and 1.43X, respectively, compared
to 1.39X and 2.05X 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 loans represent 14% of the pool balance. The
largest loan is the Wilshire Union Center Loan ($30.4 million
-- 5.7% of the pool), which is secured by a 215,500
square foot (SF) power center located in Los Angeles, California.
The center is anchored by Home Depot, Food-4-Less
and Rite Aid. The property was 100% leased as of June 2010,
the same as last review. This loan has amortized 6% since
last review. Moody's LTV and stressed DSCR are 78%
and 1.29X, respectively, compared to 85% and
1.18X at last review.
The second largest loan is the Promenade Loan ($24.9 million
-- 4.6% of the pool), which is secured by a 352,000
SF power center located in Garden Grove, California. Anchor
tenants include Regal Cinemas, 24 Hour fitness and Marshall's.
The property's financial performance has declined since last review
due to decreased occupancy -- the property was 80% leased
as of June 2010 compared to 96% at last review. An offset
to lower financial performance is the 4% amortization since last
review. Moody's LTV and stressed DSCR are 60% and
1.81X, respectively, compared to 65% and 1.67X
at last review.
The third largest loan is the U-Hall Portfolio Loan ($21.6
million -- 4.0% of the pool), which is secured
by 14 self storage properties located in 11 states. The portfolio
totals 7,128 units with individual properties ranging from 244 to
745 units. The loan has amortized 7% since last review.
Moody's LTV and stressed DSCR are 51% and 2.06X,
respectively, compared to 53% and 2.00X 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
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 Three, Affirms Seven and Downgrades Four CMBS Classes of FUNB 2002-C1
