Approximately $85.8 Million of Structured Securities Affected
New York, November 11, 2010 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes,
downgraded two classes and affirmed four classes of Prudential Securities
Secured Financing Corp., Mortgage Pass-Through Certificates,
Series 1998-C1 as follows:
Cl. A-EC, Affirmed at Aaa (sf); previously on
Jul 10, 2002 Assigned Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Aug 2,
2006 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Sep 27,
2006 Upgraded to Aaa (sf)
Cl. F, Affirmed at Aaa (sf); previously on Jul 9,
2007 Upgraded to Aaa (sf)
Cl. H, Upgraded to Aa2 (sf); previously on Mar 25,
2009 Upgraded to A2 (sf)
Cl. J, Upgraded to Baa1 (sf); previously on Mar 25,
2009 Upgraded to Baa2 (sf)
Cl. L, Downgraded to Caa3 (sf); previously on Mar 25,
2009 Downgraded to Caa1 (sf)
Cl. M, Downgraded to C (sf); previously on Mar 25,
2009 Downgraded to Ca (sf)
The upgrades are due to the significant increase in subordination due
to loan payoffs and amortization. The pool has paid down by 24%
since last review. In addition, the pool benefits from 10%
The downgrades are due to higher expected losses for the pool resulting
from realized and 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
3.9% of the current balance. Moody's stressed
scenario loss is 6% 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 these ratings was "CMBS: Moody's
Approach to Rating Conduit Transactions" published in September 2000.
This methodology is available on Moody's website at www.moodys.com.
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 to methodologies and research available on moodsy.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 March 25, 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 during the past
As of the October 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 89% to $131.7
million from $1.15 billion at securitization. The
Certificates are collateralized by 45 mortgage loans ranging in size from
less than 1% to 9% of the pool, with the top ten loans
representing 48% of the pool. Two loans, representing
10% of the pool, have defeased and are collateralized with
U.S. Government securities.
Eleven loans, representing 22% 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.
Fifteen loans have been liquidated from the pool since securitization,
resulting in an aggregate $20.8 million loss (36%
loss severity on average). Due to realized losses, class
N-1 has been eliminated entirely and Class M has experienced a
41% principal loss. Currently, one loan, representing
4% of the pool, is in special servicing. The specially
serviced loan is the Willow Brook Village Shopping Center Loan ($4.96
million -- 3.8% of the pool), which is secured
by a 179,741 square foot (SF) retail center located in Coldwater,
Michigan. The loan was transferred to special servicing in April
2010 and is currently in foreclosure. Moody's has estimated
a $2.8 million loss (56% expected loss) for the specially
Moody's has assumed a high default probability for two poorly performing
loans representing 1% of the pool. Moody's has estimated
a $378,000 loss (20% expected loss based on a 50%
probability default) from the troubled loans.
Moody's was provided with full year 2009 operating results for 90%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 64% compared to 72%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 13.0% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 10.4%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs for are 1.61X and 2.01X, respectively,
compared to 1.67X and 1.81X 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 23
compared to 26 at Moody's prior review.
The top three performing conduit loans represent 23% of the pool.
The largest loan is the Aberfeldy III Portfolio Loan ($11.7
million -- 8.9% of the pool), which is secured
by seven properties located throughout Texas. The portfolio totals
371,000 SF and consists of three office properties, three
retail properties and one mixed use property. The portfolio was
81% leased as of June 2010 compared to 84% at last review.
Despite the decline in occupancy, performance has improved due to
increased rental revenues. The loan has amortized by 5%
since last review. Moody's LTV and stressed DSCR are 87%
and 1.33X, respectively, compared to 106% and
1.10X, at last review.
The second largest loan is the Aberfeldy I Portfolio Loan ($9.5
million -- 7.2% of the pool), which is secured
by eight properties located throughout Texas. The portfolio totals
273,000 SF and consists of four office properties, three retail
properties and one mixed use property. The portfolio was 79%
leased as of June 2010 compared to 85% at last review. Four
of the properties are on the master servicer's watchlist due to low DSCR.
The decline in performance has been offset by amortization. The
loan has amortized 6% since last review. Moody's LTV and
stressed DSCR 95% and 1.22X, respectively, the
same as at last review.
The third largest loan is the Westwood Plaza Loan ($8.6
million -- 6.5% of the pool), which is secured
by a 173,854 SF shopping center located in Westwood, New Jersey.
The property was 98% leased as of July 2010, the same as
at last review. Moody's LTV and stressed DSCR 47% and 2.30X,
respectively, compared to 50% and 2.17X at last review.
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
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 Two, Downgrades Two and Affirms Four CMBS Classes of Prudential Securities 1998-C1
250 Greenwich Street
New York, NY 10007