Approximately $44.4 Million of Structured Securities Affected
New York, July 10, 2014 -- Moody's Investors Service upgraded the ratings on two classes, downgraded
ratings on three classes, and affirmed ratings on two classes in
J.P. Morgan Chase Commercial Mortgage Securities Corp.,
Commercial Mortgage Pass-Through Certificates, Series 2003-ML1
as follows:
Cl. H, Upgraded to Aaa (sf); previously on Aug 22,
2013 Upgraded to Aa3 (sf)
Cl. J, Upgraded to A1 (sf); previously on Aug 22,
2013 Upgraded to A3 (sf)
Cl. K, Downgraded to Ba1 (sf); previously on Aug 22,
2013 Upgraded to Baa3 (sf)
Cl. L, Downgraded to B1 (sf); previously on Aug 22,
2013 Upgraded to Ba3 (sf)
Cl. M, Affirmed B2 (sf); previously on Aug 22,
2013 Affirmed B2 (sf)
Cl. N, Affirmed Caa2 (sf); previously on Aug 22,
2013 Downgraded to Caa2 (sf)
Cl. X-1, Downgraded to Caa1 (sf); previously
on Aug 22, 2013 Downgraded to B2 (sf)
RATINGS RATIONALE
The ratings on two investment grade P&I classes were upgraded because
of an increase in credit support resulting from loan paydowns and the
benefits from both defeasance and amortization. The deal has paid
down 27% since Moody's last review.
The ratings on Classes K and L were downgraded due to concerns about sustained
interest shortfalls.
The ratings on two below investment grade P&I classes were affirmed
because the ratings are consistent with Moody's expected loss.
The rating on the IO class was downgraded due to the decline in the credit
performance of its reference classes resulting from principal paydowns
of higher quality reference classes.
Moody's rating action reflects a base expected loss of 22.6%
of the current balance, compared to 15.6% at Moody's
last review. The magnitude difference in percentage is attributable
to the magnitude of the deal having paid down 26% since prior review.
The actual base expected loss figure increased slightly since last review
to $11.96 million from $11.27 million at last
review. Moody's base expected loss plus realized losses is now
2.0% of the original pooled balance, compared to 1.9%
at the last review. Moody's provides a current list of base
expected losses for conduit and fusion CMBS transactions on moodys.com
at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration, an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in this rating were "Moody's Approach to Rating
CMBS Large Loan/Single Borrower Transactions" published in July 2000,
and "Moody's Approach to Rating U.S. CMBS Conduit Transactions"
published in September 2000. Please see the Credit Policy page
on www.moodys.com for a copy of these methodologies.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model v
2.64, which it uses 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 Moody's uses
to estimate Moody's value). Conduit model results at the
B2 (sf) level are based on a paydown analysis using the individual loan-level
Moody's LTV ratio. Moody's may consider other concentrations
and correlations in its analysis. Based on the model pooled credit
enhancement levels of Aa2 (sf) and B2 (sf), the required credit
enhancement on 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, Moody's
merges the credit enhancement for loans with investment-grade structured
credit assessments with the conduit model credit enhancement for an overall
model result. Moody's incorporates negative pooling (adding
credit enhancement at the structured credit assessment level) for loans
with similar structured credit assessments in the same transaction.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 6 compared
to 8 at Moody's last review.
When the Herf falls below 20, Moody's uses the excel-based
Large Loan Model v 8.7 and then reconciles and weights the results
from the conduit and large loan 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. Moody's
also further adjusts these aggregated proceeds for any pooling benefits
associated with loan level diversity and other concentrations and correlations.
DEAL PERFORMANCE
As of the June 12, 2014 distribution date, the transaction's
aggregate certificate balance has decreased by 94% to $52.9
million from $929.8 million at securitization. The
certificates are collateralized by 14 mortgage loans ranging in size from
less than 1% to 21% of the pool. Four loans,
representing 17% of the pool, have defeased and are secured
by U.S. Government securities.
There is one loan (2% of the pool balance) 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.
Thirteen loans have been liquidated from the pool, resulting in
an aggregate realized loss of $6.6 million (14% loss
severity on average). Three loans, representing 49%
of the pool, are currently in special servicing and represent a
mix of property types. The largest specially serviced loan is the
High Ridge Center Loan ($11.2 million -- 21%
of the pool), which is secured by a 261,000 square foot retail
center in Racine, Wisconsin. The largest tenants are Home
Depot, Kmart, and Office Max. The Office Max store
is located less than a mile from a competing Office Depot location.
The property was 89% leased as of September 2012. The loan
passed its Anticipated Repayment Date in December 2011. As a result,
an additional 2% in interest is accruing on the loan, resulting
in a total interest rate of 8.9%. The loan transferred
to the special servicer on December 18, 2012, after the borrower
requested a loan modification. The servicer pursued foreclosure
and is awaiting the expiration of the six month redemption period.
The second largest specially serviced loan is the Dearborn Shopping Center
Loan ($8.5 million -- 16% of the pool),
which is secured by a 200,000 square foot shopping center in Dearborn,
Michigan. The loan transferred to special servicing in November
2012 for delinquent payments. National retailers at the center
include the low-price woman's apparel retailer Dots and Radio Shack.
The largest tenant, occupying 15% of the property's net rentable
area (NRA) is a dental center. The property faces substantial lease
rollover risk and has been deemed non-recoverable, generating
sustained interest shortfalls. Negotiations with the Borrower will
be dual-tracked with the foreclosure action until a resolution
is achieved.
The third loan in special servicing is the Crosspointe Plaza Loan ($6.3
million -- 12% of the pool). The loan is secured by
a 94,000 square foot former grocery-anchored retail center
in Naugatuck, Connecticut. The loan transferred to special
servicing in October 2012 for imminent default. The property was
98% leased as of June 2012. The grocery anchor space (52,600
square feet; 56% of property NRA) is leased to Big Y Foods
through February 2015, though the space is currently dark.
Big Y, a New England grocery chain, acquired the Crosspointe
anchor space as part of a portfolio acquisition from A&P, but
chose not to operate a store at this location. A nearby Wal-Mart
was recently expanded to include the discount chain's grocery store concept.
Moody's estimates an aggregate $10.9 million loss for the
troubled and specially serviced loans (42% expected loss on average).
Moody's received full year 2012 and 2013 operating results for 100%
of the pool, respectively and 61% of partial year 2014 operating
results. Moody's weighted average conduit LTV is 61%,
compared to 80% at Moody's last review. Moody's
conduit component excludes loans with structured credit assessments,
defeased and CTL loans, and specially serviced and troubled loans.
Moody's net cash flow (NCF) reflects a weighted average haircut
of 11% to the most recently available net operating income (NOI)
for the single tenant office building conduit loan. Moody's
value reflects a weighted average capitalization rate of 9.4%.
Moody's stressed DSCR is based on Moody's NCF and a 9.25%
stress rate the agency applied to the loan balance.
The largest conduit loan is the Retreat Village Shopping Center Loan ($5.3
million -- 10% of the pool). The loan is secured
by a 108,000 square foot retail center in St. Simons Island,
Georgia. The anchor tenant Winn-Dixie recently renewed its
lease through June 2018. Moody's current LTV and stressed DSCR
are 75% and, 1.41X respectively, the same as
at last review.
The second conduit loan is the Oak Park Mall Loan ($4.3
million -- 8% of the pool). The loan is secured
by a 157,890 square foot retail center in White Oak, Pennsylvania.
Occupancy was reported at 92% in June 2014 following the lease
expiration of the Rite Aid store. The loan is fully amortizing
and has amortized 52% since securitization. Moody's current
LTV and stressed DSCR are 43% and, 2.35X respectively,
compared to 48% and 2.13X at last review.
The third largest conduit loan is the Eastgate Village Apartments Loan
($3.2 million -- 6% of the pool).
The loan is secured by a 182-unit apartment complex in Greenville,
North Carolina. The property was 84% leased as of May 2014
compared to 89% in December 2012. This loan is fully amortizing
and has amortized 42% since securitization. Moody's current
LTV and stressed DSCR are 55% and, 1.75X respectively,
compared to 59% and 1.63X at last review.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions of the disclosure form.
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.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain 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 certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Gregory Reed
Vice President - Senior 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
Keith Banhazl
Senior Vice President
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 Two, Downgrades Three, and Affirms Two Classes of JPMC 2003-ML1
