TEXT-Fitch cuts 16 classes of JPMCC 2008-C2
(The following statement was released by the rating agency)
Oct 12 () - Fitch Ratings has downgraded 16 classes and removed from RatingWatch Negative 15 classes of J.P. Morgan Chase Mortgage Securities Trust, series2008-C2. The downgrades reflect an increase in expected losses on the speciallyserviced loans, escalating interest shortfalls, and continued underperformanceof many of the larger loans not in special servicing.
Many of the loans have been in special servicing for a number of years asanticipated resolutions have not occurred. These unresolved specially servicedloans have resulted in additional trust expenses and a significant increase ininterest shortfalls from approximately $21.5 million in August 2011 toapproximately $35.6 million as of the September 2012 distribution date. Theshortfalls currently impact classes A-M though T.
The downgrades to classes A-3, A-4, A-4FL, A-SB, and A1-A reflect the expectedreduction in credit enhancement as well as a concern that interest shortfallscould affect these classes prior to class repayment. While these classes aresenior in the waterfall, limited amortization occurs monthly and only roughly$35 million in principal payoffs are expected to occur prior to 2014. Accordingto 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 ofvulnerability to interest shortfalls or deferrals, even if permitted under theterms 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
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In addition to the concern with interest shortfalls, based on current lossexpectations on loans in special servicing, the erosion of credit enhancementwill be significant upon the disposition of these assets. Additionally, while anumber of the performing larger loans have institutional quality borrowers,these loans continue to show declines in net operating income (NOI) or fail toshow performance improvement from stressed levels. Fitch's rating actions are inline with stressed model assumptions. A detailed listing of rating actionsfollows at the end of this release.
Fitch modeled losses of 22.4% of the remaining pool. Fitch has designated 28loans (46.4% of the pool balance) as Fitch Loans of Concern, which includes sixspecially serviced loans (23.9%). Fitch estimates that classes B through T maybe fully depleted from losses associated with the specially serviced assets. Asof the August 2012 distribution date, the pool's aggregate principal balance hasbeen reduced by approximately 10.3% to $1.045 billion from $1.17 billion atissuance.
The largest specially serviced asset, The Shops at Dos Lagos (12%), is comprisedof a 345,847 square foot (sf) lifestyle/entertainment retail center built in2006/2007. The loan transferred to special servicing in October 2008 formonetary default after the borrower indicated the property was significantlyimpacted by the downturn in the economy. The special servicer has foreclosed onthe property and continues to work to stabilize the tenant base, increase foottraffic, and improve visibility to the center in an effort to stabilize value.As of September 2012, occupancy was reported at 68%. The special servicer plansto market the property beginning in late 2012, with a target closing date forthe 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 a27-hole Jack Nicklaus golf course and spa, and the 412-room oceanfront WestinHilton Head, in Hilton Head, SC. The loan transferred to special servicing inOctober 2008 due to monetary default. The properties were significantly impactedby the recession and its impact on business and leisure travel. In 2010, specialservicing responsibilities were transferred from Midland Loan Services to LNRPartners, Inc.
The borrower filed for bankruptcy in November 2010, and the process continues toface delays. As of August 2012, the special servicer was still working throughthe bankruptcy process. Property values, as well as each respective market wherethe hotels are located, remain stressed, and it is uncertain as to whether theproperties will experience any additional improvement in value.
Fitch downgrades and removes from Rating Watch Negative the following classesand 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 transactionsis 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 abovewere solicited by, or on behalf of, the issuer, and therefore, Fitch has beencompensated 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 CriteriaSurveillance Methodology for U.S. Fixed-Rate CMBS TransactionsCriteria for Rating Caps in Global Structured Finance Transactions(New York Ratings Team)
((e-mail: pam.niimi@thomsonreuters.com; Reuters Messaging:pam.niimi.reuters.com@reuters.net; Tel:1-646-223-6330;))