Approximately $85.3 Million of Structured Securities Affected
New York, September 16, 2010 -- Moody's Investors Service (Moody's) upgraded the ratings of three classes,
downgraded one class and affirmed three classes of First Union National
Bank-Chase Manhattan Bank Commercial Mortgage Trust, Commercial
Mortgage Pass-Through Certificates, Series 1999-C2
IO, Affirmed at Aaa (sf); previously on May 24, 1999
Definitive Rating Assigned Aaa (sf)
G, Upgraded to Aaa (sf); previously on Sep 25, 2008 Upgraded
to A1 (sf)
H, Upgraded to A1 (sf); previously on Sep 25, 2008 Upgraded
to Baa1 (sf)
J, Upgraded to Baa3 (sf); previously on Oct 26, 2006
Upgraded to Ba3 (sf)
K, Affirmed at B3 (sf); previously on Sep 22, 2004 Downgraded
to B3 (sf)
L, Affirmed at Caa1 (sf); previously on Sep 22, 2004
Downgraded to Caa1 (sf)
M, Downgraded to C (sf); previously on Oct 26, 2006 Downgraded
to Caa3 (sf)
The downgrade is due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans. The upgrades are due to increased credit enhancement due
to loan payoffs and amortization. The pool has paid down by 90%
since Moody's last full 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 the current ratings.
In addition, the pool benefits from a high level of defeasance.
Moody's rating action reflects a cumulative base expected loss of
8.6% of the current balance. At last review,
Moody's cumulative base expected loss was 1.6%.
Moody's stressed scenario loss is 22.2% 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.
It is highly unlikely that investment grade classes would be downgraded
even if there is a significant decline in overall pool performance due
to the high level of credit enhancement available for those 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 rating First Union National Bank-Chase
Manhattan Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through
Certificates, Series 1999-C2 were "CMBS: Moody's Approach
to Conduit Transactions" published in September 2000 and "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, 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
underlying ratings 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 underlying ratings in the same
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 currently uses a Gaussian copula model to evaluate pools
of credit tenant loans (CTLs) within CMBS transactions. Moody's
public CDO rating model CDOROMv2.6 is used to generate a portfolio
loss distribution to assess the ratings. 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.
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 October 16, 2007.
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.
As of the August 17, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 93% to $87.02
million from $1.18 billion at securitization. The
Certificates are collateralized by 40 mortgage loans ranging in size from
less than 1% to 11% of the pool, with the top ten
non-defeased loans representing 50% of the pool.
The pool includes a credit tenant lease component, representing
26% of the pool. Twelve loans, representing 29%
of the pool, have defeased and are collateralized with U.S.
Government securities. Defeasance at last full review represented
50% of the pool.
Six loans, representing 14% 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
Sixteen loans have been liquidated from the pool, resulting in an
aggregate realized loss of $19.14 million (27% loss
severity). Three loans, representing 12% of the pool,
are currently in special servicing. The largest specially serviced
loan is the Belmont Crossing Loan ($4.9 million --
5.7% of the pool), which is secured by a 192-unit
multifamily property located in Smyrna, Georgia. The loan
transferred into special servicing in February 2009 due to imminent default
as the borrower indicated that it was unable to pay the loan in full at
the March 2009 maturity. The loan is in the process of foreclosure.
The second largest specially serviced loan is the Somerpoint (Woodvalley)
Loan ($3.5 million -- 4.0% of the pool),
which is secured by a 143-unit multifamily property located in
Marietta, Georgia. The loan transferred into special servicing
in February 2009 due to imminent default as the borrower indicated it
was unable to pay the loan in full at the March 2009 maturity.
The loan is in the process of foreclosure.
The remaining specially serviced loan is secured by a retail property.
Moody's has estimated an aggregate $4.1 million loss
(39% expected loss on average) for the specially serviced loans.
The master servicer has recognized an aggregate $3.0 million
appraisal reduction for two of the specially serviced loans.
Moody's has assumed a high default probability for one poorly performing
loan representing 1% of the pool and has estimated a $234,448
loss (25% expected loss based on a 50% probability default)
from this troubled loan.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 96% and 60% of the non-defeased pool,
respectively. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 84% compared to 81%
at Moody's prior full review. Moody's net cash flow
reflects a weighted average haircut of 15.9% to the most
recently available net operating income. Moody's value reflects
a weighted average capitalization rate of 10.9%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 0.99X and 1.56X, respectively,
compared to 1.54X and 1.45X 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.
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 6 compared
to 45 at Moody's prior full review. The decline in Herf has
been partially offset by increased credit support due to loan payoffs
and amortization. The pool has paid down 90% since Moody's
last full review.
The top three performing conduit loans represent 28% of the pool
balance. The largest loan is a hotel portfolio loan ($9.5
million -- 10.9% of the pool), which consists
of four cross-collateralized and cross-defaulted loans secured
by four limited stay hotels with a total of 652 rooms. Three hotels
are located in Virginia and one in Shreveport, Louisiana.
Property performance has declined since last review as the hotels have
been impacted by the downturn in the tourism industry. All four
hotels are currently on the watchlist due to an increased level of default
risk and low DSCR. The loan is fully amortizing and has paid down
15% since last review. Moody's LTV and stressed DSCR
are 117% and 1.21X, respectively, compared to
71% and 1.90X at last review.
The second largest loan is the Academy Plaza Loan ($9.2
million -- 10.6% of the pool), a 156,022
square foot grocery-anchored retail center located in Philadelphia,
Pennsylvania. Property performance is in-line with last
review and the property is currently 82% leased, the same
as at last review. The loan has amortized 6% since last
review. Moody's LTV and stressed DSCR are 72% and
1.44X, respectively, compared to 73% and 1.33X
at last review.
The third largest loan is the Whitehall Estates Loan ($5.8
million -- 6.7% of the pool), which is secured
by a 252-unit multifamily property located in Charlotte,
North Carolina. The loan is fully amortizing and has paid down
19% since last review. Moody's LTV and stressed DSCR
are 60% and 1.72X, respectively, compared to
83% and 1.21X at last review.
The CTL component includes 16 loans secured by properties leased under
bondable leases. The largest exposures include Rite Aid Corp.
(37% of the CTL component, Moody's Long Term Corporate Family
Rating Caa2 -- stable outlook), CVS (30%; Moody's
senior unsecured rating Baa2 -- stable outlook) and Walgreen Co.
(28%; Moody's senior unsecured rating A2 -- stable outlook).
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 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.
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 Three, Downgrades One and Affirms Three CMBS Classes of FUNCM 1999-C2
250 Greenwich Street
New York, NY 10007