The downgrades are due to higher expected losses for the pool resulting from interest shortfalls and realized and anticipated losses from specially serviced and troubled loans. The confirmations and affirmations 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.
On October 7, 2010, Moody's placed 15 classes on review for possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of 4.4% of the current balance. At last review, Moody's cumulative base expected loss was 0.9%. Moody's stressed scenario loss is 7.9% 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.
The principal methodology used in this rating was "CMBS: Moody's Approach to Rating Fusion Transactions" published in April 2005.
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 29, the same as at last review.
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 March 30, 2007. 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 November 18, 2010 distribution date, the transaction's aggregate certificate balance has decreased by 30% to $987.4 million from $1.4 billion at securitization. The Certificates are collateralized by 86 mortgage loans ranging in size from less than 1% to 26% of the pool, with the top ten loans representing 54% of the pool. Seven loans, representing 5% of the pool, have defeased and are collateralized by U.S. Government securities. The pool includes four loans, representing 48% of the pool, with investment grade credit estimates.
Nineteen loans, representing 31% 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.
Five loans have been liquidated from the pool since securitization, resulting in a $6.4 million loss (42% loss severity on average). Seven loans, representing 8% of the pool, are currently in special servicing. The largest specially serviced loan is the Enterprise Technology Center Loan ($32 million -- 8.3% of the pool) which is secured by a 344,000 square foot (SF) office complex located in Scotts Valley, California. The loan was transferred to special servicing April 2010 due to imminent default and is presently in foreclosure. The master servicer recognized an appraisal reduction of $43.3 million for this loan in November 2010.
The remaining six specially serviced loans are secured by a mix of property types. The master servicer has recognized an aggregate $3.8 million appraisal reduction for two of the remaining specially serviced loans. Moody's has estimated an aggregate $26.7 million loss (33% expected loss on average) for all of the specially serviced loans.
Moody's has assumed a high default probability for eight poorly performing loans representing 5% of the pool and has estimated a $10.6 million loss (21% expected loss based on a 50% probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 87% of the pool. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 88% compared to 91% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 13.7% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.4%.
Excluding specially serviced and troubled loans, Moody's actual and stressed DSCRs are 1.52X and 1.21X, respectively, compared to 1.46X and 1.11X 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 estimate is the Westfield Shoppingtown Garden State Plaza Loan ($260 million -- 26.3% of the pool), which represents a 50% pari-passu interest in a first mortgage loan. The loan is secured by the borrower's interest in an enclosed 2.0 million SF super-regional shopping mall located in Paramus, New Jersey. The mall is anchored by Macy's, Nordstrom, J.C. Penney, Neiman Marcus and Lord and Taylor. Westfield is the loan sponsor. The loan is interest-only for its entire 10-year term. Moody's current credit estimate and stressed DSCR are A1 and 1.47X, respectively, compared to A2 and 1.27X at last review.
The second loan with a credit estimate is the Two Penn Plaza Loan ($109.8 million -- 11.3% of the pool), which represents a 50% participation interest in a $219.6 million first mortgage loan. The loan is secured by a 1.5 million SF Class A office building located in New York, New York. The property was 98% leased as of December 2009 compared to 98% at last review. Vornado is the loan sponsor. Moody's current credit estimate and stressed DSCR are A1 and 1.75X, compared to Baa1 and 1.15X at last review.
The third loan with a credit estimate is the Town East Mall Loan ($100.9 million -- 10.2% of the pool) which is secured by a 1.2 million SF regional shopping mall in Mesquite, Texas. The mall is anchored by Macy's, Sears, Dillard's and J.C. Penney. Financial performance improved since last review. Mall occupancy also increased to 98% as of December 2009 compared to 93% at last review. GGP is the loan sponsor. Moody's current credit estimate and stressed DSCR are Baa1 and 1.59X, respectively, compared to Baa2 and 1.32X at last review.
The top three performing conduit loans represent 8% of the pool balance. The largest loan is the Ritz-Carlton Chicago Hotel Loan ($38.5 million -- 3.9% of the pool), which is secured by a 435-room full-service hotel located in the Watertower Complex on the Magnificent Mile in downtown Chicago, Illinois. Financial performance has declined since last review due to recent hotel renovation activity and a highly competitive hospitality market. Occupancy for the trailing twelve months ending June 2010 was 55%,compared to 72% at last review. Moody's LTV and stressed DSCR are 117% and 0.92X, respectively, compared to 66% and 1.64X at last review.
The second largest loan is the Park Parthenia Apartments Loan ($22.1 million -- 2.2% of the pool), which is secured by a 399-unit apartment property in Northridge, California. The property's financial performance has improved due to an increase in revenues. The property was 93% leased as of June 2010 compared to 95% in December 2009. Moody's LTV and stressed DSCR are 87% and 1.08X, respectively, compared to 109% and 1.02X at last review.
The third largest loan is the Sirata Beach Resort and Conference Center Loan ($21.8 million -- 2.2% of the pool), which is secured by a 380-room hotel and conference center in St. Pete Beach, Florida. Property performance has been stable. Occupancy for the trailing twelve months ending June 2010 was 72%, compared to 70% in December 2008. Moody's LTV and stressed DSCR are 63% and 1.98X, respectively, compared to 86% and 1.45X at last review.