Approximately $814.4 Million of Structured Securities Affected
New York, January 13, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of three classes,
downgraded three classes and affirmed 11 classes of Morgan Stanley Capital
I Trust 2004-TOP13, Commercial Mortgage Pass-Through
Certificates, Series 2004-TOP13 as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on
Feb 6, 2004 Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Feb 6, 2004 Assigned Aaa (sf)
Cl. X-1, Affirmed at Aaa (sf); previously on
Feb 6, 2004 Assigned Aaa (sf)
Cl. X-2, Affirmed at Aaa (sf); previously on
Feb 6, 2004 Assigned Aaa (sf)
Cl. B, Upgraded to Aaa (sf); previously on Feb 14,
2007 Upgraded to Aa1 (sf)
Cl. C, Upgraded to Aa1 (sf); previously on Feb 14,
2007 Upgraded to Aa2 (sf)
Cl. D, Upgraded to A1 (sf); previously on Feb 6,
2004 Assigned A2 (sf)
Cl. E, Affirmed at A3 (sf); previously on Nov 12,
2009 Confirmed at A3 (sf)
Cl. F, Affirmed at Baa1 (sf); previously on Nov 12,
2009 Confirmed at Baa1 (sf)
Cl. G, Affirmed at Baa2 (sf); previously on Nov 12,
2009 Confirmed at Baa2 (sf)
Cl. H, Affirmed at Baa3 (sf); previously on Nov 12,
2009 Confirmed at Baa3 (sf)
Cl. J, Affirmed at Ba1 (sf); previously on Nov 12,
2009 Confirmed at Ba1 (sf)
Cl. K, Affirmed at Ba2 (sf); previously on Nov 12,
2009 Confirmed at Ba2 (sf)
Cl. L, Affirmed at B1 (sf); previously on Nov 12,
2009 Downgraded to B1 (sf)
Cl. M, Downgraded to Caa1 (sf); previously on Nov 12,
2009 Downgraded to B2 (sf)
Cl. N, Downgraded to Ca (sf); previously on Nov 12,
2009 Downgraded to Caa1 (sf)
Cl. O, Downgraded to C (sf); previously on Nov 12,
2009 Downgraded to Caa2 (sf)
RATINGS RATIONALE
The upgrades are due to the significant increase in subordination due
to loan payoffs and amortization and stable overall performance.
The pool has paid down by 10% since last review. In addition,
the pool benefits from 9% defeasance.
The downgrades are due to higher expected losses for the pool resulting
from 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
the current ratings.
Moody's rating action reflects a cumulative base expected loss of
3.4% of the current balance. At last review,
Moody's cumulative base expected loss was 1.6%.
Moody's stressed scenario loss is 6.4% 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 Fusion Transactions" published in April 2005.
In addition to methodologies and research available on moodys.com,
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
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 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 November 12, 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 did not receive or take into account a
third party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
DEAL PERFORMANCE
As of the December 13, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 32% to $826.5
million from $1.2 billion at securitization. The
Certificates are collateralized by 153 mortgage loans ranging in size
from less than 1% to 11% of the pool, with the top
ten loans representing 40% of the pool. The pool includes
four loans with investment grade credit estimates, representing
17% of the pool. Twelve loans, representing 9%
of the pool, have defeased and are collateralized with U.S.
Government securities. Defeasance at last review represented 17%
of the pool.
Thirty-one loans, representing 26% 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.
Currently seven loans, representing 3% of the pool,
are in special servicing. The master servicer has recognized a
$1.2 million appraisal reduction for one of the specially
serviced loans. Moody's has estimated an aggregate $10.9
million loss (41% expected loss on average) for the specially serviced
loans.
Moody's has assumed a high default probability for nine poorly performing
loans representing 3% of the pool. Moody's has estimated
a $5.3 million loss (20% expected loss based on a
52% probability default) from the troubled loans.
Moody's was provided with full year 2009 operating results for 99%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV for the conduit component is 74%
compared to 73% at Moody's prior review. Moody's
net cash flow reflects a weighted average haircut of 13% to the
most recently available net operating income. Moody's value
reflects a weighted average capitalization rate of 9.4%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs for the conduit component are 1.97X and 1.74X,
respectively, compared to 1.95X and 1.68X 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 31
compared to 38 at Moody's prior review.
The largest loan with a credit estimate is the GIC Office Portfolio Loan
($87.9 million -- 10.6% of the pool),
which represents a pari passu interest in a $683.7 million
first mortgage loan. The loan is secured by 12 office properties
totaling 6.4 million square feet (SF) and located in seven states.
The highest geographic concentrations are Chicago (39% of the net
rentable area (NRA)), suburban Philadelphia (17% of the NRA)
and San Francisco (12% of the NRA). As of January 2010,
the portfolio was 87% leased compared to 91% at last review.
The portfolio's performance has declined since last review due to decreased
rental revenues and increased expenses. The loan matures in January
2014. Moody's credit estimate and stressed DSCR are Baa3 and 1.45X,
respectively, compared to Baa2 and 1.44X at last review.
The second loan with a credit estimate is the Gallup Headquarters Loan
($23.8 million -- 2.9% of the pool),
which is secured by a 296,000 SF office building located in Omaha,
Nebraska. The property is 100% leased to Gallup, Inc.,
under a triple net lease that expires in October 2018. The lease
expiration is coterminous with the loan maturity. The loan is fully
amortizing and has amortized by approximately 7% since last review.
Performance has improved since securitization due to rental escalations
and amortization. Moody's credit estimate and stressed DSCR are
Aa3 and 2.08X, respectively, compared to A2 and 1.90X
at last review.
The third loan with a credit estimate is the Hudson Mall Loan ($15.1
million -- 1.8% of the pool), which is secured
by a 362,000 SF retail center located in Jersey City, New
Jersey. The property was 93% leased as of September 2010
compared to 96% at last review. Moody's credit estimate
and stressed DSCR are A3 and 1.80X, respectively, the
same as at last review.
The fourth loan with a credit estimate is the Renaissance Manor Loan ($11.0
million -- 1.3% of the pool), which is secured
by a 184-unit multifamily complex located in North Brunswick,
New Jersey. The property was 93% leased as of December 2009.
Moody's credit estimate and stressed DSCR are Baa2 and 1.54X,
respectively, compared to Baa3 and 1.43X at last review.
The top three performing conduit loans represent 18% of the pool.
The largest loan is the U.S. Bank Tower Loan ($65.0
million -- 7.9% of the pool), which represents
a pari passu interest in a $260 million first mortgage loan.
The loan is secured by a 1.4 million SF office tower and accompanying
parking garage in downtown Los Angeles, California. The loan
sponsor is Maguire Properties. The property was 57% leased
as of September 2010 compared to 88% at last review. The
property's largest tenant, Latham & Watkins (20% of the
NRA) vacated the premises at its December 2009 lease expiration.
Furthermore, the lease for the second largest tenant, Sempra
Energy (16% of the NRA) expired in June 2010. Even with
the substantial decline in cash flow from the dramatic rise in vacancy,
Moody's projects that the property will still generate cash flow in excess
of debt service. However, given the softness in the Los Angeles
office market, it is anticipated that new tenants will be paying
lower rents than those currently in place. In addition, due
to Maguire's current financial issues, Moody's is concerned about
the availability of funds for leasing costs. The loan is interest-only
for the entire term. Moody's LTV and stressed DSCR are 135%
and 0.74X, respectively, compared to 103% and
0.97X, at last review.
The second largest loan is the Lakeland Square Mall Loan ($53.1
million -- 6.4 % of the pool), which is secured
by an 899,000 SF regional mall located in Lakeland, Florida.
The center is anchored by JCPenney, two Dillard's stores and Macy's.
JCPenny is the only anchor that is part of the collateral. As of
June 2010, the center was 82% leased, compared to 92%
at last review. The loan sponsors are General Growth Properties,
Inc. and NYS Common Retirement Fund. Moody's LTV and stressed
DSCR 98% and 1.03X, respectively, compared to
91% and 1.09X at last review.
The third largest loan is the Galleria Plaza Shopping Center Loan ($26.2
million -- 3.2% of the pool), which is secured
by a 168,000 SF shopping center located in Dallas, Texas.
The center was 100% leased as of September 2010 compared to 71%
at last review. Moody's LTV and stressed DSCR 81% and 1.27X,
respectively, compared to 95% and 1.08X 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 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.
New York
Robert Gilbane
Associate 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, Downgrades Three and Affirms 11 CMBS Classes of MSC 2004-TOP13
