Approximately $1.3 Billion of Structured Securities Affected
New York, November 20, 2012 -- Moody's Investors Service affirmed the ratings of 18 classes of Credit Suisse First Boston Securities Corp., Commercial Mortgage Pass-Through Certificates, Series 2004-C5 as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)
Cl. A-AB, Affirmed at Aaa (sf); previously on Mar 9, 2011 Confirmed at Aaa (sf)
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. A-J, Affirmed at Aa2 (sf); previously on Dec 17, 2010 Downgraded to Aa2 (sf)
Cl. B, Affirmed at A2 (sf); previously on Dec 17, 2010 Downgraded to A2 (sf)
Cl. C, Affirmed at Baa1 (sf); previously on Dec 17, 2010 Downgraded to Baa1 (sf)
Cl. D, Affirmed at Baa3 (sf); previously on Dec 17, 2010 Downgraded to Baa3 (sf)
Cl. E, Affirmed at Ba2 (sf); previously on Dec 17, 2010 Downgraded to Ba2 (sf)
Cl. F, Affirmed at B1 (sf); previously on Dec 17, 2010 Downgraded to B1 (sf)
Cl. G, Affirmed at B3 (sf); previously on Dec 17, 2010 Downgraded to B3 (sf)
Cl. H, Affirmed at Caa2 (sf); previously on Dec 17, 2010 Downgraded to Caa2 (sf)
Cl. J, Affirmed at Caa3 (sf); previously on Dec 17, 2010 Downgraded to Caa3 (sf)
Cl. K, Affirmed at Ca (sf); previously on Dec 17, 2010 Downgraded to Ca (sf)
Cl. L, Affirmed at C (sf); previously on Dec 17, 2010 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Dec 17, 2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Dec 17, 2010 Downgraded to C (sf)
Cl. A-X, Affirmed at Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)
The affirmations of the principal 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. Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain their current ratings. The IO Class, Class IO, is affirmed since it is consistent with the credit performance of its referenced classes.
Moody's rating action reflects a base expected loss of 4.8% of the current balance compared to 6.5% at last review. Moody's provides a current list of base expected losses for conduit and fusion CMBS transactions on moodys.com at http://www.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 U.S. CMBS Conduit Transactions" published in September 2000, "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000 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 pay down 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 underlying 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 underlying rating level, is incorporated for loans with similar credit assessments in the same transaction.
Moody's review also incorporated the CMBS 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 estimates; original and current bond balances grossed up for losses for all bonds the IO(s) reference(s) within the transaction; and IO type corresponding to an 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 ver1.1 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 16, the same as at last 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 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 certificate balance has decreased 29% to $1.3 billion from $1.9 billion at securitization. The Certificates are collateralized by 178 mortgage loans ranging in size from less than 1% to 23% of the pool. Nine loans, representing 4.0% of the pool, have defeased and are backed by U.S. Government securities. There are no loans with an investment grade credit assessment.
There are presently 47 loans, representing 19% of the pool, 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-four loans have been liquidated from the pool since securitization, resulting in an aggregate $33.2 million loss (21% loss severity on average). Currently eight loans, representing 4% of the pool, are in special servicing. Moody's has estimated a $20.5 million loss (39% expected loss on average) for the specially serviced loans.
Moody's has assumed a high default probability for five poorly performing loans representing 2% of the pool and has estimated a $4.4 million aggregate loss (22% expected loss based on a 50% probability of default) from these troubled loans.
Moody's was provided with full year 2011 and partial year 2012 operating results for 99% and 91% of the performing pool, respectively. Excluding specially serviced and troubled loans, Moody's weighted average conduit LTV is 93% compared to 94% at last review. Moody's net cash flow reflects a weighted average haircut of 11.1% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 8.9%.
Excluding specially serviced and troubled loans, Moody's actual and stressed conduit DSCRs are 1.27X and 1.1X, respectively, compared to 1.26X and 1.07X, respectively, at last full 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 30% of the pool balance. The largest loan is the Time Warner Retail Loan ($299.3 million -- 22.6% of the pool), which is secured by a 343,000 square foot (SF) retail center located at Columbus Circle between West 58th and West 60th Street in New York City. The largest tenants are Whole Foods (17% of the net rentable area (NRA); lease expiration January 2024) and Equinox (12% of the NRA; lease expiration February 2019). The property was 85% leased as of June 2012 compared to 99% at last review. Despite the decline in occupancy, financial performance increased in 2011. This loan has amortized 6.5% since securitization. Moody's LTV and stressed DSCR are 92% and 0.94X, respectively, compared to 95% and 0.92X at last review.
The second largest loan is the AT&T Consumer Services Headquarters Loan ($49.6 million -- 3.7% of the pool), which is secured by a 387,000 SF office building located in Morris Township, New Jersey. The property is 100% leased to AT&T Consumer Services (Moody's senior unsecured rating - A2, on watch for possible downgrade) through September 2014. AT&T has been in the building since it was built in 1979 and has renewed its lease multiple times but has no remaining options to extend the lease beyond the currently scheduled 2014 lease expiration date. The loan was interest only until its anticipated repayment date (ARD) of October 2009 at which point the interest rate increased from 5.35% to 7.35%. The loan began to amortize and all excess cash flow is applied to reduce the outstanding principal balance. Since the ARD date, the loan has amortized 14%. The loan is on the servicer's watchlist for missing its ARD but is performing. The final maturity date is in October 2034. Moody's analysis incorporated a stressed cash flow due to the tenancy risk associated with the single tenant exposure, the near-term lease expiration and lack of extension options. Moody's LTV and stressed DSCR are 119% and 0.82X, respectively, compared to 122% and 0.8X at last review.
The third largest exposure is the BECO Portfolio Loan ($45.8 million -- 3.5% of the pool), which consists of three cross-collateralized and cross-defaulted loans secured by 14 adjacent office buildings located 10 miles northeast of Washington, D.C. in Lanham, Maryland. As of June 2012, the portfolio was 74% leased compared to 76% at last review and 89% at securitization. Two of the three loans are on the master servicer's watchlist for low DSCR. The loan matures in September 2014. This loan has amortized 12% since securitization. Moody's LTV and stressed DSCR are 119% and 0.91X, respectively, compared to 108% and 0.9X at last review.
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Gregory Reed Vice President - Senior 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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