Approximately $269.1 Million of Structured Securities Affected
New York, March 17, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes
and affirmed five classes of Credit Suisse First Boston Mortgage Securities
Corp., Commercial Mortgage Pass-Through Certificates,
Series 1998-C2 as follows:
Cl. AX, Affirmed at Aaa (sf); previously on Nov 20,
1998 Assigned Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Dec 8,
2006 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Feb 9,
2007 Upgraded to Aaa (sf)
Cl. F, Upgraded to A3 (sf); previously on Feb 9,
2007 Upgraded to Ba1 (sf)
Cl. G, Upgraded to Ba1 (sf); previously on Feb 9,
2007 Upgraded to Ba2 (sf)
Cl. H, Affirmed at Caa3 (sf); previously on May 21,
2009 Downgraded to Caa3 (sf)
Cl. I, Affirmed at C (sf); previously on Jan 19,
2006 Downgraded to C (sf)
RATINGS RATIONALE
The upgrades are due to overall improved pool performance and increased
credit subordination due to loan payoffs and amortization. The
pool has amortized 12% since last review.
The affirmations are due to key rating 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
7.5% of the current balance. At last review,
Moody's cumulative base expected loss was 10.5%.
Moody's stressed scenario loss is 18.1% 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 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 this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions " published in April 2005,
" CMBS: Moody's Approach to Rating Large Loan 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 12
compared to 14 at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs also
the large loan/single borrower methodology. This methodology uses
the excel-based Large Loan Model v 8.0. 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.
For deals that include a pool of credit tenant loans, Moody's
currently uses a Gaussian copula model, incorporated in its public
CDO rating model CDOROMv2.8 to generate a portfolio loss distribution
to derive credit enhancement levels for CTL component. 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 May 21, 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 in the past
six months.
DEAL PERFORMANCE
As of the February 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 86% to $269.1
million from $1.92 billion at securitization. The
Certificates are collateralized by 49 mortgage loans ranging in size from
less than 1% to 20% of the pool, with the top ten
loans representing 67% of the pool. The pool includes a
credit tenant lease (CTL) component, representing 51% of
the pool. One loan, representing 20% of the pool,
has an investment grade credit estimate. Four loans, representing
5% of the pool, have defeased and are collateralized with
U.S. Government securities.
Nine loans, representing 28% 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.
Eighteen loans have been liquidated from the pool, resulting in
an aggregate $49.6 million realized loss (48% loss
severity on average). At Moody's last review the pool had
realized an aggregate loss of $46.0 million. Currently
there is one loan, representing 12% of the pool, in
special servicing. The Camco Portfolio Loan ($31.9
million -- 11.8%) is secured by two retail properties
and one industrial property totaling 547,000 square feet.
The properties are located in North Richland Hills (2) and Irving,
Texas. The portfolio was 76% leased as of September 2010
compared to 85% at last review. Performance has declined
since securitization due to lower rental revenues and increased operating
expenses. The loan has passed its October 11, 2008 ARD and
was transferred to special servicer in December 2009. The loan
has been modified to decrease the interest rate and extend the term and
is being monitored by the servicer. Moody's estimates a loss of
$3.5 million for this specially serviced loan (based on
50% probability default).
Moody's has assumed a high default probability for two poorly performing
loans representing 4% of the pool and has estimated an aggregate
$4.1 million loss (34% expected loss based on a 68%
probability default) from these troubled loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 87% and 28% of the pool, respectively,
excluding the CTL and defeased loans. Excluding specially serviced
and troubled loans, Moody's weighted average LTV is 86%
compared to 130% at Moody's prior review. Moody's
net cash flow reflects a weighted average haircut of 15% 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 are 1.17X and 1.62X, respectively,
compared to 0.83X and 0.93X 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 loan with a credit estimate is the 180 Water Street Loan ($53.7
million - 19.9%), which is secured by a 505,000
square foot office building located in the Financial District submarket
of New York City. The property is 100% leased to the City
of New York Department of Citywide Administrative Services under a long-term
lease which expires in June 2018. The loan amortizes on a 20-year
schedule and matures in August 2013. Performance has been stable.
The loan has amortized by 12% since last review. Moody's
current credit estimate and stressed DSCR are A2 and 1.53X,
respectively, compared to A3 and 1.36X at last review.
The top three performing conduit loans represent 9% of the pool
balance. The largest loan is the St. Landry Plaza Shopping
Center Loan ($8.8 million - 3.3%),
which is secured by a 222,000 square foot retail center located
in Opelousas, Louisiana. The center's major tenant,
Wal-Mart (55% of NRA; lease expiration June 2011) vacated
its space in 2004 but subsequently subleased 68% of its space.
The center was 84% leased as of March 2010, the same at last
review. The loan has passed its July 2008 Anticipated Repayment
Date (ARD) and is now in an extended term. The loan is on the servicer's
watchlist due low DSCR. The master servicer's most recently reported
DSCR is 0.72x. Moody's has recognized this loan as
a troubled loan. Moody's LTV and stressed DSCR are 160%
and 0.64X, respectively, compared to 208% and
0.49X at last review.
The second largest loan is the Jewelry Theatre Building loan ($8.5
million -- 3.1%), which is secured by a 72,000
square foot retail property located in the Jewelry District of Los Angeles,
California. Performance has declined due to low occupancy.
Moody's LTV and stressed DSCR are 121% and 0.94X,
respectively, compared to 108% and 1.05X at last review.
The third largest loan is the Agawan Stop & Shop Loan ($6.6
million -- 2.5% of the pool), which is secured
by a 66,500 square foot retail property located in Agawam,
Massachusetts. The property is 100% leased to the Stop &
Shop Supermarket under a lease which expires in January 2014. Performance
has been stable. Moody's LTV and stressed DSCR are 76% and
1.36X, respectively, compared to 82% and 1.26X
at last review.
The CTL component includes thirty five loans ($137.5 million
-- 51.1%) secured by properties leased to seven tenants
under bondable leases. The largest exposures are Motel 6/Accor
SA (55% of the CTL component), CVS/Caremark Corp.
(20%; Moody's senior unsecured rating Baa2 - stable
outlook) and United Artists (9%). The bottom-dollar
weighted average rating factor (WARF) for the CTL pool is 2,199
compared to 2,018 at last review. WARF is a measure of the
overall quality of a pool of diverse credits. The bottom-dollar
WARF is a measure of the default probability within the pool.
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
Dariusz Surmacz
Asst Vice President - 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 Two and Affirms Five CMBS Classes of CSFB 1998-C2
