Approximately $845 Million of Structured Securities Affected
New York, November 16, 2012 -- Moody's Investors Service (Moody's) affirmed the ratings of 13 classes of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2003-C4 as follows:
Cl. A-4, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)
Cl. A-1-A, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)
Cl. D, Affirmed at Aa2 (sf); previously on Dec 10, 2010 Confirmed at Aa2 (sf)
Cl. E, Affirmed at A1 (sf); previously on Dec 10, 2010 Confirmed at A1 (sf)
Cl. F, Affirmed at Baa2 (sf); previously on Dec 10, 2010 Downgraded to Baa2 (sf)
Cl. G, Affirmed at Ba3 (sf); previously on Dec 10, 2010 Downgraded to Ba3 (sf)
Cl. H, Affirmed at Caa1 (sf); previously on Dec 10, 2010 Downgraded to Caa1 (sf)
Cl. J, Affirmed at Caa2 (sf); previously on Dec 10, 2010 Downgraded to Caa2 (sf)
Cl. K, Affirmed at Ca (sf); previously on Dec 10, 2010 Downgraded to Ca (sf)
Cl. L, Affirmed at C (sf); previously on Dec 10, 2010 Downgraded to C (sf)
Cl. A-X, Affirmed at Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)
The affirmations for the 12 principal bonds 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 their current ratings.
The rating of the IO Class, Class A-X, is consistent with the credit performance of its referenced classes and thus is affirmed.
Moody's rating action reflects a base expected loss of 4.2% of the current pooled balance compared to 4.9% at last review. The deal's cumulative realized losses have increased by $12 million since Moody's last review. Moody's current based expected loss plus cumulative realized losses is 5.2% of the original pooled balance compared to 5.1% at last review. Moody's provides a current list of base expected 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 extent of growth in the current macroeconomic environment and commercial real estate property markets. Commercial real estate property values are continuing to move in a 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 hotel sector is performing strongly with eight straight quarters of growth and the multifamily sector continues to show increases in demand with a growing renter base and declining home ownership. Slow recovery in the office sector continues with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow and employers are considering decreases in the leased space per employee. Also, 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 discounting and promotions. However, rising wages and reduced unemployment, along with increased consumer confidence, is helping to spur consumer spending resulting in increased sales. 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 maintains its forecast of relatively robust growth in the US and an expectation of a mild recession in the euro area for 2012. Downside risks remain significant, and elevated downside risks and their materialization could pose a serious threat to the outlook. Major downside risks include: a deeper than expected recession in the euro area; the potential for a hard landing in major emerging markets; an oil supply shock; and material fiscal tightening in the US given recent political gridlock. Healthy but below-trend growth in GDP is expected through the rest of this year and next with risks trending to the downside.
The methodologies used in this rating were "Moody's Approach to Rating Fusion U.S. CMBS Transactions" published in April 2005, and "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012. 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 2.61 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 review also utilized the IO calculator ver1.1, 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 28, compared to 32 at Moody's prior review.
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 December 1, 2011. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.
As of the October 17, 2012 distribution date, the transaction's aggregate pooled certificate balance has decreased by 36% to $851 million from $1.3 billion at securitization. The Certificates are collateralized by 133 mortgage loans ranging in size from less than 1% to 8% of the pool, with the top ten loans representing 40% of the pool. Twenty-one loans, representing 19% of the pool, have been defeased and are collateralized with U.S. Government Securities. Two loans, representing 13% of the pool, have investment grade credit assessments.
Thirty-two loans, representing 32% 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.
Twenty-one loans have been liquidated from the pool at a loss, resulting in an aggregate realized loss of $34 million (33% average loss severity). Four loans, representing 4% of the pool, are currently in special servicing. The largest specially serviced loan is loan is the 800 Apollo Loan ($17 million -- 2.0%), which is secured by a 190,000 square foot (SF) office building located in El Segundo, California. The property has been completely vacant since April 2011. The servicer is dual tracking foreclosure and a possible workout. The loan is less than one month delinquent and the servicer has not recognized an appraisal reduction.
The servicer has recognized an aggregate $3 million appraisal reduction for two of the four specially serviced loans, while Moody's estimates an aggregate $9 million loss (30% expected loss overall) from all four specially serviced loans.
Moody's has assumed a high default probability for 13 poorly performing loans representing 9% of the pool and has estimated an $11 million aggregate loss (15% expected loss based on a 50% probability default) from these troubled loans.
Moody's was provided with full year 2011 and partial year 2012 operating results for 97% and 94% of the pool's non-defeased loans, respectively. Moody's weighted average conduit LTV is 83% compared to 79% at Moody's prior review. The conduit portion of the pool excludes specially serviced, troubled and defeased loans as well as the two loans with credit assessments. 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 9.6%.
Moody's actual and stressed conduit DSCRs are 1.48X and 1.36X, respectively, compared to 1.64X and 1.48X 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 largest loan with a credit assessment is the Circle Centre Mall Loan ($67 million -- 7.8% of the pool), which is secured by a leasehold interest in an 800,000 SF regional mall located in Indianapolis, Indiana. Simon Property Group, which is headquartered in Indianapolis, is the loan sponsor. The mall is anchored by Carson Pirie Scott. Nordstrom, a previous anchor tenant, vacated the mall in July 2011 and terminated its lease in December 2011. The total mall is only 69% leased as of June 2012 compared to 96% as of September 2011. Despite Nordstrom's departure, the in-line space remains well leased at 91%. Moody's current credit assessment and stressed DSCR are Baa2 and 1.68X, respectively, compared to Baa2 and 1.60X at last review.
The second loan with a credit assessment is the 540 Madison Avenue Loan ($43 million -- 5.1% of the pool), which is secured by a 281,000 SF office building located in the Plaza District office submarket of New York City. The property is 91% leased as of June 2012 compared to 97% at last review. The property's largest tenant, SAC Capital, vacated at its September 2012 lease expiration. Loan sponsor, Boston Properties, is building out some of the vacated space for a replacement tenant and converting some into marketing and showroom space. Moody's current credit assessment and stressed DSCR are Aaa and 3.08X, respectively, compared to Aaa and 3.02X at last review.
The top three performing conduit loans represent 16% of the pool balance. The largest loan is Wanamaker Building Loan ($56 million -- 6.6% of the pool), which is secured by a 974,000 SF office property located in Philadelphia, Pennsylvania. The property is also encumbered by a $7 million B-note. The building also contains a 435,000 SF retail condominium, solely occupied by Macy's, which is not part of the collateral. The property is 99% leased as of June 2012, which is the same as at last review. Moody's A-Note LTV and stressed DSCR are 62% and 1.66X, respectively, compared to 63% and 1.63X at last review.
The second largest loan is the Jefferson Pointe Shopping Center Loan ($55 million -6.4%), which is secured by a 410,000 SF retail property located in Fort Wayne, Indiana. The property was 90% leased as of September 2012 compared with 88% as of June 2011. The loan matures in August 2013. The debt yield is 7.6% based on 2011 net operating income (NOI). The annualized June 2012 NOI indicates a slight cash flow improvement, which may be necessary to fully refinance the loan by maturity. Moody's LTV and stressed DSCR are 129% and 0.79%, respectively, compared to 145% and 0.71X at last review.
The third largest loan is the Town & Country Apartments Loan ($22 million -- 2.5% of the pool), which is secured by a 618 unit multifamily property located near the University of Illinois Champaign campus in Urbana, Illinois. The property was 96% leased as of June 2012 compared to 99% at last review. Moody's LTV and stressed DSCR are 84% and 1.15X, respectively, compared to 95% and 1.03X at last review.
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Peter Benjamin Simon Associate Analyst Structured Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Sandra 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 StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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