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Rating Action:

Moody's Upgrades Two and Affirms 16 CMBS Classes of JPMCC 2004-C3

Global Credit Research - 15 Nov 2013

Approximately $940.7 Million of Structured Securities Affected

New York, November 15, 2013 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes and affirmed 16 classes of JP Morgan Chase Commercial Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2004-C3 as follows:

Cl. A-1A, Affirmed Aaa (sf); previously on Dec 29, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Affirmed Aaa (sf); previously on Dec 29, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-5, Affirmed Aaa (sf); previously on Dec 29, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-J, Upgraded to Aa1 (sf); previously on Mar 18, 2010 Downgraded to Aa3 (sf)

Cl. B, Upgraded to A3 (sf); previously on Jan 27, 2012 Downgraded to Baa2 (sf)

Cl. C, Affirmed Baa3 (sf); previously on Jan 27, 2012 Downgraded to Baa3 (sf)

Cl. D, Affirmed Ba3 (sf); previously on Jan 27, 2012 Downgraded to Ba3 (sf)

Cl. E, Affirmed B2 (sf); previously on Jan 27, 2012 Downgraded to B2 (sf)

Cl. F, Affirmed B3 (sf); previously on Mar 18, 2010 Downgraded to B3 (sf)

Cl. G, Affirmed Caa2 (sf); previously on Mar 18, 2010 Downgraded to Caa2 (sf)

Cl. H, Affirmed Caa3 (sf); previously on Mar 18, 2010 Downgraded to Caa3 (sf)

Cl. J, Affirmed Ca (sf); previously on Mar 18, 2010 Downgraded to Ca (sf)

Cl. K, Affirmed C (sf); previously on Mar 18, 2010 Downgraded to C (sf)

Cl. L, Affirmed C (sf); previously on Mar 18, 2010 Downgraded to C (sf)

Cl. M, Affirmed C (sf); previously on Mar 18, 2010 Downgraded to C (sf)

Cl. N, Affirmed C (sf); previously on Mar 18, 2010 Downgraded to C (sf)

Cl. P, Affirmed C (sf); previously on Mar 18, 2010 Downgraded to C (sf)

Cl. X-1, Affirmed Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

RATINGS RATIONALE

The upgrades of two P&I bonds are due to increased credit support from loan payoffs and amortization and anticipated additional increased credit support from the payoff of loans approaching maturity that are well positioned for refinance.

The affirmations of the investment grade P&I classes 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. The ratings of the below investment grade P&I bonds are consistent with Moody's expected loss and thus are affirmed. The rating of the IO Class, Class X-1, is consistent with the credit performance of its referenced classes and thus is affirmed.

Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their current ratings. Depending on the timing of loan payoffs and the severity and timing of losses from specially serviced loans, the credit enhancement level for rated 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 rating action reflects a base expected loss of 7.5% of the current pooled balance compared to 8.3% at last review. Moody's base expected loss plus realized losses is 6.9% of the original pooled balance compared to 7.5% at last review. Moody's provides a current list of base losses for conduit and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.

The methodologies used in this rating were "Moody's Approach to Rating U.S. CMBS Conduit Transactions" published in September 2000 and "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.64 which is used 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 used by Moody's to estimate Moody's value). Conduit model results at the B2 (sf) 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 (sf) and B2 (sf), 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 assessments is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the credit assessment 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 assessment level, is incorporated for loans with similar credit assessments 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 16 compared to 19 at the 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 8.6 and then reconciles and weights the results from 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. These aggregated proceeds are then further adjusted for any pooling benefits associated with loan level diversity, other concentrations and correlations.

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 a review utilizing MOST® (Moody's Surveillance Trends) Reports and a proprietary program that highlights significant credit changes that have occurred in the last month as well as cumulative changes since the last full transaction review. On a periodic basis, Moody's also performs a full transaction review that involves a rating committee and a press release. Moody's prior transaction review is summarized in a press release dated December 13, 2012. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

DEAL PERFORMANCE

As of the October 15, 2013 distribution date, the transaction's aggregate certificate balance has decreased by 38% to $940.7 million from $1.5 billion at securitization. The Certificates are collateralized by 104 mortgage loans ranging in size from less than 1% to 11% of the pool, with the top ten loans representing 42% of the pool. There are 16 defeased loans representing 25% of the pool balance.

Twenty 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.

Fifteen loans have been liquidated from the pool, resulting in a realized loss of $34.0 million (67.6% loss severity). Currently two loans, representing 5% of the pool, are in special servicing. The largest specially serviced loan is the Everest Portfolio Loan ($46.9 million -- 5.0% of the pool), which was originally secured by five office/industrial corporate parks totaling 676,000 square feet (SF). All of the properties are located in Massachusetts. The loan was transferred to special servicing in May 2009 for imminent default and all properties became real estate owned (REO) by June 2012. Two of the corporate parks were sold, which generated $16.7 million of net sale proceeds compared to an allocated loan amount of $22.4 million.

The master servicer has recognized an aggregate $32.1 million in appraisal reduction for the specially serviced loans. Moody's has estimated an aggregate loss of $32.3 million (65% expected loss on average) for all of the specially serviced loans.

Moody's has assumed a high default probability for 13 poorly performing loans representing 15% of the pool and has estimated a $21.3 million loss (14.7% expected loss based on a 50% probability default) from these troubled loans.

Moody's was provided with full year 2012 operating results for 100% of the pool balance. Moody's weighted average conduit LTV is 86% compared to 90% at last review. The conduit portion of the pool excludes specially serviced, troubled and defeased loans. Moody's net cash flow reflects a weighted average haircut of 11% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.1%.

Moody's actual and stressed conduit DSCRs are 1.52X and 1.22X, respectively, compared to 1.47X and 1.15X 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 loans represent 25% of the pool. The largest loan is the DDR Portfolio Loan ($140.3 million -- 14.9% of the pool), which consists of a portfolio of 13 crossed collateralized and crossed defaulted loans secured by properties located in New York (9 properties), Ohio (1), Georgia (1), Tennessee (1) and Mississippi (1). The portfolio contains 1.6 million SF. The portfolio was 92% leased as of September 2013, the same as at last review. The loan has passed its November 2011 anticipated repayment date (ARD). Consequently, excess portfolio cash flow is being used to pay down the principal balance. The balance has been paid down by approximately $5 million since last review. Moody's LTV and stressed DSCR are 103% and 0.94X, respectively, compared to 108% and 0.90X at last review.

The second largest loan is the Crossroads Shopping Center Loan ($58.4 million -- 6.2% of the pool), which is secured by a 311,000 SF retail center located in White Plains, New York. The property is anchored by a K-Mart with a lease though January 2017. The loan remains on the watchlist as property performance has not fully rebounded from the departure of A&P Supermarket in September 2011. A&P had occupied 12% of the net rentable area (NRA). The departure of A&P triggered a co-tenancy clause, enabling Homegoods (8% of NRA) to pay 2% of its monthly sales in rent. The property was 88% leased as of June 2013 compared to 75% as of September 2012. Through year end 2014, 18% of the property's NRA is scheduled to roll over. Moody's LTV and stressed DSCR are 131% and 0.70X, respectively, compared to 127% and 0.72X at last review.

The third largest conduit loan is the Broadway Marketplace Loan ($37.1 million -- 3.9% of the pool), which is secured by a 387,000 SF retail center located in Denver, Colorado. The property is located five miles south of the city's central business district. The center is anchored by a Sam's Club (29% of the NRA; lease expiration in November 2018), K-Mart (28% of the NRA; lease expiration in March 2019) and Albertons (13% of the NRA; lease expiration in May 2019). As of June 2013, the property was 97% leased. Through year end 2014, 9% of the NRA is scheduled to roll over. Moody's LTV and stressed DSCR are 91% and 1.01X, respectively, compared to 105% and 0.87X at last review.

REGULATORY DISCLOSURES

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.

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.

Benjamin Abrams
Associate 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

Sandra Ruffin
VP - Senior Credit Officer
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 and Affirms 16 CMBS Classes of JPMCC 2004-C3
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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