Approximately $36.6 million notional amount
New York, February 14, 2013 -- Moody's Investors Service (Moody's) affirmed the ratings of one class
of DLJ Commercial Mortgage Corp., Commercial Mortgage Pass-Through
Certificates, Series 1998-CF1 as follows:
Cl. S, Affirmed Caa1 (sf); previously on Feb 22,
2012 Downgraded to Caa1 (sf)
RATINGS RATIONALE
The rating of the IO Class, Class S, is consistent with the
expected credit performance of its referenced classes and thus is affirmed.
The IO class is the only outstanding Moody's rated class in this
transaction.
Moody's rating action reflects a base expected loss of 5.9%
of the current pooled balance. Moody's base expected loss plus
realized losses is now 1.9% of the original pooled 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 assessments for
the principal classes could decline below their current levels.
If future performance materially declines, the expected credit assessments
of the referenced tranches may be insufficient to support the current
ratings of the interest-only classes.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics.
Primary sources of assumption uncertainty are the extent of growth in
the current macroeconomic environment given the weak pace of recovery
and commercial real estate property markets. Commercial real estate
property values are continuing to move in a modestly positive direction
along with a rise in investment activity and stabilization in core property
type performance. Limited new construction and moderate job growth
have aided this improvement. However, a consistent upward
trend will not be evident until the volume of investment activity steadily
increases for a significant period, non-performing properties
are cleared from the pipeline, and fears of a Euro area recession
are abated.
The multifamily sector continues to show increases in demand with a growing
renter base and declining home ownership. Primary urban markets
are outperforming secondary suburban markets. Performance in the
retail sector continues to be mixed with retail rents declining for the
past four years, weak demand for new space and lackluster sales
driven by internet sales growth. Across all property sectors,
the availability of debt capital continues to improve with robust securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates.
Moody's central global macroeconomic scenario calls for US GDP growth
for 2013 that is likely to remain close to 2% as the greater impetus
from the US private sector is likely to broadly offset the drag on activity
from more restrictive fiscal policy. Thereafter, we expect
the US economy to expand at a somewhat faster pace than is likely this
year, closer to its long-run average pace of growth.
Risks to our forecasts remain skewed to the downside despite recent positive
developments. Moody's believes that the three most immediate
risks are: i) the risk of a deeper than currently expected recession
in the euro area accompanied by deeper credit contraction, potentially
triggered by a further intensification of the sovereign debt crisis;
ii) slower-than-expected recovery in major emerging markets
following the recent slowdown; and iii) an escalation of geopolitical
tensions, resulting in adverse economic developments.
The methodologies used in this rating were "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012, "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 2.62 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.
The conduit model includes an IO calculator, which uses the following
inputs to calculate the proposed IO rating based on the published methodology:
original and current bond ratings and credit assessments; original
and current bond balances grossed up for losses for all bonds the IO(s)
reference(s) within the transaction; and IO type as defined in the
published methodology. The calculator then returns a calculated
IO rating based on both a target and mid-point. For example,
a target rating basis for a Baa3 (sf) rating is a 610 rating factor.
The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e.
the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf)
rating factor of 940). If the calculated IO rating factor is 700,
the CMBS IO calculator would provide both a Baa3 (sf) and Ba1 (sf) IO
indication for consideration by the rating committee.
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 5 compared
to 10 at Moody's 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 8.5 and then reconciles
and weights the results from the two 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.
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 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 May 20,
2010. 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 January 15, 2012 distribution date, the transaction's
aggregate certificate balance has decreased by 96% to $36.6
million from $838.8 million at securitization. The
Certificates are collateralized by 15 mortgage loans ranging in size from
1.6% to 24% of the pool, with the top ten non-defeased
loans representing 93% of the pool. One loan, representing
7% of the pool, have defeased and are secured by U.S.
Government securities. The pool has no loans with investment grade
credit assessments.
Three loans, representing 33% 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.
Ten loans have been liquidated from the pool, resulting in an aggregate
realized loss of $13.7 million (25% loss severity
on average). Currently there are no loans in special servicing.
Moody's has assumed a high default probability for one poorly performing
loan representing 24% of the pool and has estimated an aggregate
$1.3 million loss (15% expected loss based on a 50%
probability default) from this troubled loan.
Moody's was provided with full year 2011 operating results for 93%
of the pool's non-defeased loans. Excluding troubled
loans, Moody's weighted average LTV is 86%.
Moody's net cash flow reflects a weighted average haircut of 9%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 11.0%.
Excluding troubled loans, Moody's actual and stressed DSCRs
are 1.05X and 1.50X, respectively. 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 conduit loans represent 48% of the pool. The
largest conduit loan is the Walgreens Portfolio Loan ($11.1
million -- 30.4% of the pool), which is cross-collateralized
and cross-defaulted of five Walgreens properties. Two are
located in California, two in Nevada and one in Washington.
Moody's LTV and stressed DSCR are 96% and 1.24X,
respectively.
The second largest conduit loan is the Randall's Store Loan ($3.8
million -- 10.4% of the pool), which is secured
by 59,000 square foot (SF) grocery store located in Sugar Land,
Texas. The loan matures in December 2017 with the properties lease
extending an additional five years till 2022. Moody's LTV
and stressed DSCR are 87% and 1.37X, respectively.
The third largest conduit loan is the Walgreens - Seattle Loan
($2.6 million -- 7.1% of the pool),
which is secured by a 13,900 SF retail store located in Seattle,
Washington. The loan matures in November 2017. Moody's
LTV and stressed DSCR are 90% and 1.32X, respectively.
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.
In conducting surveillance of this credit, Moody's considered performance
data contained in servicer and remittance reports. Moody's obtains
servicer reports on this transaction on a periodic basis, at least
annually.
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.
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.
Randy Goldstein
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
Michael Gerdes
MD - Structured Finance
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 affirms one CMBS class of DLJCM 1998-CF1
