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Rating Action:

Moody's Upgrades Three Classes and Affirms Four CMBS Classes of FUNCM 1999-C2

29 Mar 2012

Approximately $72 Million of Structured Securities Affected

New York, March 29, 2012 -- Moody's Investors Service (Moody's) upgraded the ratings of three classes and affirmed four CMBS classes of First Union National Bank-Chase Manhattan Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 1999-C2 as follows:

Cl. G, Affirmed at Aaa (sf); previously on Sep 16, 2010 Upgraded to Aaa (sf)

Cl. H, Affirmed at Aaa (sf); previously on Apr 22, 2011 Upgraded to Aaa (sf)

Cl. J, Upgraded to Aa2 (sf); previously on Apr 22, 2011 Upgraded to A3 (sf)

Cl. K, Upgraded to Ba1 (sf); previously on Apr 22, 2011 Upgraded to B1 (sf)

Cl. L, Upgraded to B2 (sf); previously on Sep 22, 2004 Downgraded to Caa1 (sf)

Cl. M, Affirmed at C (sf); previously on Sep 16, 2010 Downgraded to C (sf)

Cl. IO, Affirmed at Caa1 (sf); previously on Feb 22, 2012 Downgraded to Caa1 (sf)

RATINGS RATIONALE

The upgrades are due primarily to paydowns and amortization, as well as an increase in the share of defeased loans in the pool.

The affirmations are due to key parameters, including Moody's 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.

The rating of the IO Class, Class IO, is consistent with the expected credit performance of its referenced classes and thus is affirmed..

Moody's rating action reflects a cumulative base expected loss of approximately 10.3% of the current deal balance. At last review, Moody's cumulative base expected loss was approximately 6.5%. Moody's provides a current list of base 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.

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Primary sources of assumption uncertainty are the extent of the slowdown in growth in the current macroeconomic environment and commercial real estate property markets. While commercial real estate property values are beginning to move in a positive direction, a consistent upward trend will not be evident until the volume of investment activity increases, distressed properties are cleared from the pipeline, and job creation rebounds. The hotel and multifamily sectors continue to show positive signs and improvements in the office sector continue with minimal additions to supply. However, office demand is closely tied to employment, where unemployment remains above long-term averages and business confidence remains below long-term averages. Performance in the retail sector has been mixed with lackluster Holiday sales driven by sales and promotions. Consumer confidence remains low. Across all property sectors, the availability of debt capital continues to improve with increased securitization activity of commercial real estate loans supported by a monetary policy of low interest rates. Moody's central global macroeconomic scenario reflects: an overall downward revision of real growth forecasts since last quarter, amidst ongoing and policy-induced banking sector deleveraging leading to a tightening of bank lending standards and credit contraction; financial market turmoil continuing to negatively impact consumer and business confidence; persistently high unemployment levels; and weak housing markets resulting in a further slowdown in growth.

The methodologies used in this rating were "Moody's Approach to Rating Conduit U.S. CMBS Transactions" published in September 2000, "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000 and "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies. For deals that include a pool of credit tenant loans, Moody's uses its credit-tenant lease ("CTL") financing methodological approach ("CTL" approach). 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. 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 CDOROMv2.8 to generate a portfolio loss distribution to assess the ratings.

Moody's review incorporated the use of the Excel-based CMBS Conduit Model v 2.60 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 (sf) 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 (sf) 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 (sf) and B2 (sf), 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 review also incorporated the CMBS IO calculator ver 1.0, which uses the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit estimates; original and current bond balances grossed up for losses for all bonds the IO(s) reference(s) within the transaction; and IO type corresponding to an IO type as defined in the published methodology. The calculator then returns a calculated IO rating based on both a target and mid-point . For example, a target rating basis for a Baa3 (sf) rating is a 610 rating factor. The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e. the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf) rating factor of 940). If the calculated IO rating factor is 700, the CMBS IO calculator ver1.0 would provide both a Baa3 (sf) and Ba1 (sf) IO indication for consideration by the rating committee.

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 5, compared to a Herf of 13 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 8.2 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 a review utilizing MOST® (Moody's Surveillance Trends) Reports and a proprietary program that highlights significant credit changes that have occurred in the last month as well as cumulative changes since the last full transaction review. On a periodic basis, Moody's also performs a full transaction review that involves a rating committee and a press release. Moody's prior transaction review is summarized in a press release dated April 22, 2011. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

DEAL PERFORMANCE

As of the March 16, 2012 distribution date, the transaction's aggregate certificate balance has decreased by 94% to $73 million from $1.18 billion at securitization. The Certificates are collateralized by 38 mortgage loans ranging in size from less than 1% to 12% of the pool. The CTL component of the pool includes thirteen loans, representing approximately 24% of the pool. Fourteen loans, representing approximately 33% of the pool, are defeased and are collateralized by U.S. Government securities.

Eight loans, representing 24% 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.

Forty-eight loans have liquidated from the pool, resulting in an aggregate realized loss of $20 million (16% average loan loss severity). Currently, two loans, representing 9% of the pool, are in special servicing. The largest specially serviced loan is the Belmont Crossing Loan ($5 million -- 7% of the pool), which is secured by a late-1960s era, 192-unit multifamily complex in Smyrna, Georgia, a suburb of Atlanta. The borrower, unable to pay off the loan at maturity in March 2009, agreed to a Deed in Lieu of Foreclosure in December 2010, and the property is now REO. The property is listed for sale and a purchase and sale agreement is under negotiation. The servicer has recognized a $3.2 million appraisal reduction for this loan.

The second specially-serviced loan is the OfficeMax Retail Center Loan ($2 million -- 3% of the pool). The borrower has requested a loan modification and extension, which Moody's expects to be approved in the near term. Moody's estimates an aggregate $3.6 million loss for all specially serviced loans.

Moody's has assumed a high default probability for one poorly-performing loan representing 2% of the pool. Moody's analysis attributes to this troubled loan an aggregate $250,000 loss (20% expected loss severity based on a 50% probability default).

Moody's was provided with full-year 2010 and partial year 2011 operating results for 91% and 68% of the performing pool, respectively. Excluding troubled loans, Moody's weighted average LTV is 68%, compared to 70% at last full review. Moody's net cash flow reflects a weighted average haircut of 17% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 10.7%.

Excluding troubled loans, Moody's actual and stressed DSCRs are 1.11X and 1.87X, respectively, compared to 1.30X and 1.78X 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 30% of the pool. The largest loan is the Academy Plaza Loan ($9 million -- 12% of the pool). The loan is secured by a 156,000 square foot grocery-anchored retail center in Philadelphia, Pennsylvania. The property was 81% leased as of YE 2011, the same as Moody's last review. The anchor is Acme Markets, a subsidiary of SuperValu, Inc. (Moody's senior unsecured rating B2, stable outlook). Moody's current LTV and stressed DSCR are 74% and 1.38X, respectively, compared to 71% and 1.43X at last review.

The second-largest loan is a portfolio loan ($8 million -- 12% of the pool) consisting of four cross-collateralized hotel loans. The loans are secured by two hotels located in Alexandria, Virginia, one hotel located in Fredericksburg, Virginia, and one hotel located in Shreveport, Louisiana. The portfolio originally included six hotel loans, two of which are now defeased. All four loans in the portfolio are currently on the watchlist due to poor performance at the Days Inn -- Fredericksburg and the Days Inn -- Shreveport. Performance at the Fredericksburg hotel has improved considerably since Moody's last review. The two Alexandria hotels, a Days Inn and a Comfort Inn, are located in the Washington, DC regional market and together represent approximately 93% of the total Net Operating Income across the portfolio. Moody's current LTV and stressed DSCR are 75% and 1.88X, respectively, compared to 83% and 1.70X at last review.

The third-largest loan is the Whitehall Estates Loan ($5 million -- 7% of the pool). The loan is secured by a 252-unit multifamily property in Charlotte, North Carolina. The property was built in 1997, and is 96% leased, similar to the occupancy at Moody's last review. Moody's current LTV and stressed DSCR are 50% and, 2.07X respectively, compared to 52% and 1.99X at last review.

The CTL component includes 13 loans secured by properties leased under bondable leases. Moody's provides ratings for 94% of the CTL component and has updated its internal credit estimate for the remainder of the CTL credits. The largest exposures include Rite Aid Corp. (43% of the CTL component, Moody's Long Term Corporate Family Rating Caa2 -- stable outlook), Walgreen Co. (30%; Moody's senior unsecured rating A2 -- stable outlook), and CVS/Caremark (20%; Moody's senior unsecured rating Baa2 -- stable outlook).

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Wesley Flamer-Binion
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

Michael M. Gerdes
MD - Structured Finance
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 Three Classes and Affirms Four CMBS Classes of FUNCM 1999-C2
No Related Data.
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