Oct 12 - Fitch Ratings has downgraded 16 classes and removed from Rating Watch Negative 15 classes of J.P. Morgan Chase Mortgage Securities Trust, series 2008-C2. The downgrades reflect an increase in expected losses on the specially serviced loans, escalating interest shortfalls, and continued underperformance of many of the larger loans not in special servicing.
Many of the loans have been in special servicing for a number of years as anticipated resolutions have not occurred. These unresolved specially serviced loans have resulted in additional trust expenses and a significant increase in interest shortfalls from approximately $21.5 million in August 2011 to approximately $35.6 million as of the September 2012 distribution date. The shortfalls currently impact classes A-M though T.
The downgrades to classes A-3, A-4, A-4FL, A-SB, and A1-A reflect the expected reduction in credit enhancement as well as a concern that interest shortfalls could affect these classes prior to class repayment. While these classes are senior in the waterfall, limited amortization occurs monthly and only roughly $35 million in principal payoffs are expected to occur prior to 2014. According to Fitch's global criteria for rating caps, Fitch will not assign or maintain 'AAAsf' or 'AAsf' ratings for notes that it believes have a high level of vulnerability to interest shortfalls or deferrals, even if permitted under the terms of the documents (for more information please see the full report titled 'Criteria for Rating Caps in Global Structured Finance Transactions', dated Aug. 2, 2012, at
In addition to the concern with interest shortfalls, based on current loss expectations on loans in special servicing, the erosion of credit enhancement will be significant upon the disposition of these assets. Additionally, while a number of the performing larger loans have institutional quality borrowers, these loans continue to show declines in net operating income (NOI) or fail to show performance improvement from stressed levels. Fitch's rating actions are in line with stressed model assumptions. A detailed listing of rating actions follows at the end of this release.
Fitch modeled losses of 22.4% of the remaining pool. Fitch has designated 28 loans (46.4% of the pool balance) as Fitch Loans of Concern, which includes six specially serviced loans (23.9%). Fitch estimates that classes B through T may be fully depleted from losses associated with the specially serviced assets. As of the August 2012 distribution date, the pool's aggregate principal balance has been reduced by approximately 10.3% to $1.045 billion from $1.17 billion at issuance.
The largest specially serviced asset, The Shops at Dos Lagos (12%), is comprised of a 345,847 square foot (sf) lifestyle/entertainment retail center built in 2006/2007. The loan transferred to special servicing in October 2008 for monetary default after the borrower indicated the property was significantly impacted by the downturn in the economy. The special servicer has foreclosed on the property and continues to work to stabilize the tenant base, increase foot traffic, and improve visibility to the center in an effort to stabilize value. As of September 2012, occupancy was reported at 68%. The special servicer plans to market the property beginning in late 2012, with a target closing date for the first quarter of 2013.
The next largest contributor to expected losses is the Westin Portfolio (9.8%), which is comprised of the 487-room Westin La Poloma in Tucson, AZ, with a 27-hole Jack Nicklaus golf course and spa, and the 412-room oceanfront Westin Hilton Head, in Hilton Head, SC. The loan transferred to special servicing in October 2008 due to monetary default. The properties were significantly impacted by the recession and its impact on business and leisure travel. In 2010, special servicing responsibilities were transferred from Midland Loan Services to LNR Partners, Inc.
The borrower filed for bankruptcy in November 2010, and the process continues to face delays. As of August 2012, the special servicer was still working through the bankruptcy process. Property values, as well as each respective market where the hotels are located, remain stressed, and it is uncertain as to whether the properties will experience any additional improvement in value.
Fitch downgrades and removes from Rating Watch Negative the following classes and assigns outlooks and recovery estimates as indicated:
--$54.4 million class A-SB to 'Asf' from 'AAAsf'; Outlook Stable; --$354.6 million class A-4 to 'Asf' from 'AAAsf'; Outlook Stable; --$145 million class A-FL to 'Asf' from 'AAAsf'; Outlook Stable; --$61 million class A-1A to 'Asf' from 'AAAsf'; Outlook Stable; --$116.5 million class AM to 'CCCsf' from 'BBsf'; RE 100%; --$61.2 million class AJ to 'Csf' from 'CCCsf'; RE 40%; --$14.6 million class B to 'Csf' from 'CCCsf'; RE 0%; --$14.6 million class C to 'Csf' from 'CCCsf'; RE 0%; --$10.2 million class D to 'Csf' from 'CCsf'; RE 0%; --$10.2 million class E to 'Csf' from 'CCsf'; RE 0%; --$13.1 million class F to 'Csf' from 'CCsf'; RE 0%; --$11.7 million class G to 'Csf' from 'CCsf'; RE 0%; --$16 million class H to 'Csf' from 'CCsf'; RE 0%; --$14.6 million class J to 'Csf' from 'CCsf'; RE 0%; --$14.6 million class K to 'Csf' from 'CCsf'; RE 0%.
In addition, Fitch downgrades the following class:
--$105.2 million class A-3 to 'Asf' from 'AAAsf'; Outlook Stable.
In addition, Fitch affirms the following classes:
--$8.7 million class L at 'Csf'; RE 0%; --$4.4 million class M at 'Csf'; RE 0%; --$5.8 million class N at 'Csf'; RE 0%; --$4.4 million class P at 'Csf'; RE 0%; --$2.9 million class Q at 'Csf'; RE 0%; --$1.7 million class T at 'Dsf'; RE 0%.
Classes A-1 and A-2 have paid in full.
Additional information on Fitch's criteria for analyzing U.S. CMBS transactions is available in the Dec. 21, 2011 report, 'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions', which is available at '
under the following headers:
Structured Finance >> CMBS >> Criteria Reports
Additional information is available at '
'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research: --'Global Structured Finance Rating Criteria' (June 6, 2012); --'Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions' (Dec. 21, 2011); --'Criteria for Rating Caps in Global Structured Finance Transaction' (Aug. 2, 2012). Applicable Criteria and Related Research: Global Structured Finance Rating Criteria Surveillance Methodology for U.S. Fixed-Rate CMBS Transactions Criteria for Rating Caps in Global Structured Finance Transactions (New York Ratings Team)