Approximately $83.2 Million of Structured Securities Affected
New York, April 22, 2011 -- Moody's Investors Service (Moody's) upgraded the rating of three classes
and affirmed the ratings of four classes of First Union National Bank-Chase
Manhattan Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through
Certificates, Series 1999-C2 as follows:
Cl IO., Affirmed at Aaa (sf); previously on May 24,
1999 Definitive Rating Assigned Aaa (sf)
Cl G., Affirmed at Aaa (sf); previously on Sep 16,
2010 Upgraded to Aaa (sf)
Cl H., Upgraded to Aaa (sf); previously on Sep 16,
2010 Upgraded to A1 (sf)
Cl J., Upgraded to A3 (sf); previously on Sep 16,
2010 Upgraded to Baa3 (sf)
Cl K., Upgraded to B1 (sf); previously on Sep 22,
2004 Downgraded to B3 (sf)
Cl L., Affirmed at Caa1 (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)
RATINGS RATIONALE
The upgrades are due to overall improved pool financial performance and
increased credit support due to amortization.
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
6.5% of the current balance. At last review,
Moody's cumulative base expected loss was 8.6%.
Moody's stressed scenario loss is 12.5% 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 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 current sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011 The hotel and multifamily sectors are continuing to show
signs of recovery, while recovery in the office and retail sectors
will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in these ratings were: "CMBS:
Moody's Approach to Rating Fusion Transactions" published
in April 2005, "CMBS: Moody's Approach to Rating Large Loan/Single
Borrower Transactions" published in July 2000, and "CMBS:
Moody's Approach to Rating Credit Tenant Lease (CTL) Backed Transactions"
published in October 1998.
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 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 credit estimate 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 5 compared
to 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 8.0 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 CDOROMv2.8-5 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 September 16, 2010.
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 April 15, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 93% to $83.2
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 45% of the pool.
Thirteen loans, representing 31% of the pool, have
defeased and are secured by U.S. Government securities.
Defeasance at last review represented 29% of the pool.
Seven loans, representing 16% 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.
Sixteen loans have been liquidated from the pool, resulting in an
aggregate realized loss of $19.04 million (27% loss
severity). Currently three loans, representing 12%
of the pool, are in special servicing. The largest specially
serviced loan is the Belmont Crossing Loan ($4.9 million
-- 5.8% 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
maturity default. The borrower agreed to a deed-in-lieu
in December 2010 after exhausting all efforts to refinance the loan.
The property is currently Real Estate Owned (REO) and has been listed
for sale for $4.0 million. A recent appraisal valued
the property at $3.25 million.
The second largest specially serviced loan is the Somerpoint (Woodvalley)
Loan ($3.5 million -- 4.2% 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 maturity default. The
loan has the same sponsor as the Belmont Crossing Loan. The property
is currently REO and has been listed for sale for $4.2 million.
A recent appraisal valued the property at $3.75 million.
The remaining specially serviced property is secured by an anchored retail
center located in Medford, Oregon. Moody's estimates an aggregate
$3.5 million loss for the specially serviced loans (42%
expected loss on average).
Moody's was provided with full year 2009 operating results for 100%
of the pool (excluding defeased, specially serviced and CTL loans).
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 70% compared to 84% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 12% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
10.1%.
Excluding special serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.30X and 1.78X, respectively,
compared to 0.99X and 1.56X 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 28% of the pool
balance. The largest loan is a hotel portfolio ($9.1
million -- 10.9% of the pool), which
consists of four cross-collateralized and cross-defaulted
fully amortizing 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 improved since last review
as the Days Inn in Shreveport finished hotel renovations and is fully
now fully operational. Additionally, RevPAR and occupancy
at all properties improved in 2010 compared to 2009. All four hotels
are currently on the watchlist due to low DSCR. The loan is fully
amortizing and has paid down 3% since last review and 37%
since securitization. Moody's LTV and stressed DSCR are 83%
and 1.70X, respectively, compared to 117% and
1.21X at last review.
The second largest loan is the Academy Plaza Loan ($9.1
million -- 10.9% of the pool), which
is secured by 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 81%
leased, essentially the same as at last review. The loan
has amortized 1% since last review and 17% since securitization.
Moody's LTV and stressed DSCR are 72% and 1.43X, respectively,
compared to 72% and 1.44X at last review.
The third largest loan is the Whitehall Estates Loan ($5.4
million -- 6.5% of the pool), which
is secured by a 252-unit multifamily property located in Charlotte,
North Carolina. Property performance is in-line with last
review and the property is currently 98% leased, essentially
the same as at last review. The loan is fully amortizing and has
paid down 4% since last review and 45% since securitization.
Moody's LTV and stressed DSCR are 52% and 1.99X, respectively,
compared to 60% and 1.72X at last review.
The CTL component includes 15 loans secured by properties leased under
bondable leases. Moody's provides ratings for 93%
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. (39% of the CTL component, Moody's
Long Term Corporate Family Rating Caa2 -- stable outlook),
Walgreen Co. (29%; Moody's senior unsecured rating
A2 -- stable outlook), and CVS/Caremark (26%;
Moody's senior unsecured rating Baa2 -- stable outlook).
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
Amit Rustgi
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 Four CMBS Classes of FUNCM 1999-C2
