Approximately $45.4 Million of Structured Securities Affected
New York, April 06, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes
and affirmed three classes of Prudential Securities Secured Financing
Corporation, Commercial Mortgage Pass-Through Certificates,
Series 1999-NRF1 as follows:
Cl. A-EC, Affirmed at Aaa (sf); previously on
Mar 9, 2011 Confirmed at Aaa (sf)
Cl. G, Upgraded to A1 (sf); previously on Nov 1,
2007 Upgraded to Baa3 (sf)
Cl. H, Upgraded to Ba1 (sf); previously on Nov 4,
2010 Downgraded to B2 (sf)
Cl. J, Affirmed at Caa2 (sf); previously on Nov 4,
2010 Downgraded to Caa2 (sf)
Cl. K, Affirmed at C (sf); previously on Nov 4,
2010 Downgraded to C (sf)
The upgrades are due to significant increase in credit subordination levels
due to loan payoffs and amortization. The pool has amortized 42%
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
19.6% of the current balance. At last review,
Moody's cumulative base expected loss was 30.1%.
Moody's stressed scenario loss is 20.3% 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
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 these ratings were: "CMBS:
Moody's Approach to Rating U.S. Conduit Transactions
" published in September 2000, and " CMBS: Moody's
Approach to Rating Large Loan Transactions" published in July 2000.
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 10
compared to 9 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.
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 November 4, 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
As of the March 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 95% to $45.4
million from $928.9 million at securitization. The
Certificates are collateralized by 17 mortgage loans ranging in size from
less than 1% to 23% of the pool, with the top ten
loans representing 83% of the pool. The pool faces significant
refinancing risk, as loans representing 54% of the pool,
have matured or will mature within the next six months.
Four loans, representing 23% 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
Twenty-one loans have been liquidated from the pool, resulting
in an aggregate $28.1 million realized loss (44%
loss severity on average). At Moody's last review the pool
had realized an aggregate loss of $11.8 million.
Currently there are six loans representing 31% of the pool in special
servicing. All of the specially serviced loans are maturity defaults.
The largest specially serviced loan is the Cambridge Place Loan ($3.9
million -- 8.8%), which is secured by a 62-unit
healthcare facility located in Great Falls, Montana. The
loan was transferred to special servicer on January 24, 2008.
The property sponsor was Sunwest Co., which filed for bankruptcy.
In July 2010, the Court approved Sunwest's Chapter 11 Reorganization
Plan and this asset was sold to the Blackstone Group effective September
2, 2010. The loan is in the process of modification.
The second largest specially serviced loan is the Riverrain Terrace Apartments
Loan ($3.9 million -- 8.7%), which
is secured by a 120-unit multifamily property located in Ypsilanti,
Michigan. The loan was transferred to special servicer on January
4, 2008. The property was 100% leased as of December
2010. The borrower has requested a loan extension to provide more
time to secure new financing. The remaining four specially serviced
loans are secured by a mix of property types. The master service
has recognized appraisal reductions totaling $2.9 million
for two of the specially serviced loans. Moody's has estimated
an aggregate $3.9 million loss (28% expected loss
on average) for the specially serviced loans.
Moody's has assumed a high default probability for one poorly performing
loan representing 8% of the pool and has estimated an aggregate
$950,000 loss (25% expected loss based on a 50%
probability default) from this troubled loan.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 90% and 89% of the pool, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 93% compared to 65% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 16% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.39X and 1.96X, respectively,
compared to 1.77X and 2.35X 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 loans represent 39% of the pool balance.
The largest loan is the Kansas City FBI Building Loan ($10.3
million -- 22.8%), which is secured by a 87,000
square foot office building located in Kansas City, Missouri.
At last review the loan was in special servicing due to the borrower's
bankruptcy filing; the reorganization plan was accepted and the loan
maturity was extended until September 15, 2011. The property
is 100% leased to GSA through June 18, 2013. The property
was appraised for $8.7 million in April 2010. Although
the property is 100% leased, Moody's is concerned about
refinancing risk associated with this loan due to the weak Kansas City
market and the relatively short term remaining on the GSA lease.
Moody's valuation incorporates a lit/dark analysis. Moody's
LTV and stressed DSCR are 149% and 0.76X, respectively,
the same as at last review.
The second largest loan is the Hall Group Industrial Buildings Loan (3.8
million -- 8.4%), which is secured by a 66,000
square foot office/industrial property located in Novi, Michigan.
The property was 67% leased as of June 2010. The loan is
current although performance has been weak for a few years. The
loan is on the servicer's watchlist due to low DSCR and occupancy.
Due to its weak performance, Moody's has recognized this loan
as a troubled loan. Moody's LTV and stressed DSCR are 144%
and 0.79X, respectively, compared to 147% and
0.77X at last review.
The third largest loan is the Eagle Run Apts. Phase I Loan ($3.7
million -- 8.2% of the pool), which is secured
by a 204-unit multifamily property located in Atlanta, Georgia.
The property was 67% leased as of September 2010 compared to 76%
at last review. Net Operating Income (NOI) has decreased by 27%
since last review. The loan is on the servicer's watchlist
due to low DSCR and occupancy. Moody's LTV and stressed DSCR are
114% and 0.9X, respectively, compared to 70%
and 1.47X 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
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes 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.
Asst Vice President - Analyst
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 and Affirms Three CMBS Classes of PSSF 1999-NRF1
250 Greenwich Street
New York, NY 10007