Approximately $630.0 Million of Structured Securities Affected
New York, February 03, 2011 -- Moody's Investors Service (Moody's) upgraded three and affirmed 12 classes
of J.P. Morgan Chase Commercial Mortgage Securities Corp.,
Commercial Mortgage Pass-Through Certificates, Series 2003-ML1
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jul 24, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 24, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-1, Affirmed at Aaa (sf); previously on
Jul 24, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Jun 29,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Jul 9,
2007 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Jul 10,
2007 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Sep 25,
2008 Upgraded to Aaa (sf)
Cl. F, Upgraded to Aa1 (sf); previously on Sep 25,
2008 Upgraded to A1 (sf)
Cl. G, Upgraded to A1 (sf); previously on Sep 25,
2008 Upgraded to A3 (sf)
Cl. H, Upgraded to Baa2 (sf); previously on Jul 24,
2003 Definitive Rating Assigned Ba1 (sf)
Cl. J, Affirmed at Ba2 (sf); previously on Jul 24,
2003 Definitive Rating Assigned Ba2 (sf)
Cl. K, Affirmed at Ba3 (sf); previously on Jul 24,
2003 Definitive Rating Assigned Ba3 (sf)
Cl. L, Affirmed at B1 (sf); previously on Jul 24,
2003 Definitive Rating Assigned B1 (sf)
Cl. M, Affirmed at B2 (sf); previously on Jul 24,
2003 Definitive Rating Assigned B2 (sf)
Cl. N, Affirmed at B3 (sf); previously on Jul 24,
2003 Definitive Rating Assigned B3 (sf)
RATINGS RATIONALE
The upgrades are due to the significant increase in subordination due
to loan payoffs and amortization and overall stable pool performance.
The pool has paid down by 25% since Moody's last review.
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, Moody's stressed 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. At last review, Moody's cumulative
base expected loss was 1.3%. Moody's stressed scenario
loss is 8.2% 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 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 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 these ratings was "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
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
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 48
compared to 45 at Moody's prior full 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 July 10, 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 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 6 months.
DEAL PERFORMANCE
As of the January 12, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 31% to $640.3
million from $929.8 million at securitization. The
Certificates are collateralized by 107 mortgage loans ranging in size
from less than 1% to 7% of the pool, with the top
ten loans representing 28% of the pool. Seventeen loans,
representing 25.0% of the pool, have defeased and
are collateralized with U.S. Government securities.
One loan, representing 7% of the pool, has an investment
grade credit estimate.
Twenty-five loans, representing 18% 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.
Five loans have been liquidated from the pool since securitization,
resulting in an aggregate $4.8 million loss (23%
loss severity on average). Currently three loans, representing
3% of the pool, are in special servicing. The master
servicer has recognized a $864,905 appraisal reduction for
one specially serviced loan. Moody's has estimated an aggregate
loss of $2.5 million (15% expected loss on average)
for all of the specially serviced loans.
Moody's has assumed a high default probability for one poorly performing
loan representing 0.5% of the pool and has estimated a $407,042
loss (13% expected loss based on a 50% probability default)
from these troubled loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 96% and 79%, respectively, of the
non-defeased performing pool. Excluding specially serviced
and troubled loans, Moody's weighted average LTV is 77% compared
to 80% at last full 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 are 1.79X and 1.65X, respectively,
compared to 1.52X and 1.33X at last full 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 loan with a credit estimate is the Hyatt Regency Hotel Loan Loan ($45.1
million -- 7.0%), which is secured by a 686-room
full service hotel with a 53,000 square feet (SF) of flexible function
space located in Arlington, Virginia. Despite the overall
downturn in the tourism industry, the hotel's performance only slightly
declined and is performing better than at last full review. The
loan is amortizing on a 360-month schedule maturing in January
2013 and has paid down 6% since last full review. Moody's
current credit estimate and stressed DSCR are Aa3 and 2.95X,
respectively, compared to A3 and 2.15X at last full review.
The top three performing conduit loans represent 10% of the pool
balance. The largest conduit loan is the JANAF Shopping Center
Loan ($30.7 million -- 4.8% of the pool),
which is secured by a 583,000 SF retail center located in Norfolk,
Virginia. The collateral comprises a retail center, two office
buildings, an out parcel strip retail building and pad sites.
The largest retail tenants include Sports Authority (7% of the
net rentable area (NRA); lease expiration August 2016), TJ
Maxx (6% of the NRA; lease expiration January 2014),
and Conway (6% of the NRA; lease expiration May 2012).
The largest non-retail tenant is JANAF, which leases 6%
of the subject's total NRA through April 2020. Norfolk demographic
trends remain weak and thousands of jobs are at risk due to the pending
closure of the U.S. Joint Forces Command (JFCOM) which may
inhibit growth in consumer spending. Due to slower anticipated
recovery in this market, Moody's has stressed this loan.
The loan is amortizing on a 300-month schedule maturing in May
2012 and has paid down 8% since last full review. Moody's
LTV and stressed DSCR are 77% and 1.36X, respectively,
compared to 71% and 1.44X at last review.
The second largest conduit loan is the 4820 Overland Avenue Loan ($17.7
million -- 2.8% of the pool), which is secured
by a two-story office building and a single-story R&D
building totaling 158,585 SF located in Kearny Mesa, California.
The property was 100% leased to Overland Data, Inc.
through February 2014. However, the tenant has amended the
lease to remove the entire office building and 6,950 of the NRA
of the R&D building from its leasehold interest leaving 91,300
of the NRA in the R&D building. Northrop-Grumman Systems
Corporation (Moody's senior unsecured rating of Baa1 - stable outlook)
now occupies this space in a lease through June and November 2015.
Property performance is inline with Moody's original expectations.
The loan is amortizing on a 360-month schedule maturing in August
2014 and has paid down 6% since last full review. Moody's
LTV and stressed DSCR are 74% and 1.43X, respectively,
compared to 73% and 1.40X at last full review.
The third conduit largest loan is the Hershey Heritage Village Loan ($14.4
million -- 2.2% of the pool), which is secured
by a 517-unit multifamily property located in Lancaster,
Pennsylvania. The property was 95% leased as of August 2010
compared to 98% at last review. Property performance is
stable. The loan had a 59-month interest-only period
and is amortizing on a 353-month schedule maturing in January 2013.
The loan has paid down 4% since last full review. Moody's
LTV and stressed DSCR are 65% and 1.58X, respectively,
compared to 59% and 1.64X at last full 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
Tiffany Putman
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 and Affirms 12 CMBS Classes of JPMCC 2003-ML1
