DBRS Downgrades Nine Classes of Morgan Stanley Capital I Trust, Series 2007-TOP 25, Trend Negative

DBRS has today downgraded, with a Negative trend, the ratings of nine classes of Morgan Stanley Capital I Trust, Series 2007-TOP25 as follows:

• Class F to BBB from BBB (high)
• Class G to BB (high) from BBB
• Class H to BB (low) from BBB (low)
• Class J to B from BB (high)
• Class K to B (low) from BB
• Class L to CCC from BB (low)
• Class M to CCC from B (high)
• Class N to CCC from B
• Class O to CCC from B (low)

DBRS has also changed the trend of Class D and Class E to Negative from Stable. Please see the performance update report for more details (see link below).

The changes primarily reflect the negative outlook for the fourth largest loan, Village Square (3.9% of the pool). The property is a 237,834-square-foot shopping center anchored by an 18-screen movie theater located in Las Vegas. The loan was transferred to the special servicer in February 2009 and is 30 days delinquent. The property's occupancy had decreased to 77% as of November 2008 compared with 90% at issuance, and the property continues to lose tenants. The debt service coverage ratio (DSCR) is now well below 1.0 times (x) and the DBRS estimate of potential losses for this loan is approximately $36.2 million, based on a current liquidation value. DBRS derived the current liquidation value by applying a 9.5% cap rate to in-place cash flow, excluding tenants on expired leases and the majority of the income associated with a lease to the sponsor that expires in 2011. There is one other delinquent loan in the transaction, which represents 0.1% of the pool, that will likely result in a small loss to the trust upon resolution.

In the event that the $36.2 million potential loss for Village Square were to materialize, Classes K, L, M, N, O and P (not rated by DBRS) would each experience a 100% loss and Class J would experience a 30% loss. In addition, credit enhancement to Class G and Class H would be below 1%. DBRS’s downgrades reflect the fact that Village Square was recently transferred to the special servicer and since the resolution strategy is still unknown at this point, the loss on Village Square may ultimately be significantly lower than $36.2 million.

There are seven loans on the DBRS HotList, four of which are secured by retail assets. These loans have begun to experience declining performance as a result of the current economy and going forward, DBRS expects additional retail properties in the transaction will report declines in occupancy and net cash flow. In total, the transaction has significant retail exposure, with 69 retail properties representing 41.7% of the current pool balance. DBRS will continue to monitor the pool’s retail exposure closely through its “Monthly CMBS Surveillance Report.”

The majority of the remaining loans in the transaction have maintained stable performance since issuance, reporting a weighted-average DSCR of 1.67x (on a whole-loan and principal and interest basis). There has also been little change to the pool’s underlying collateral since issuance as 203 of the original 204 loans remain after one small loan (0.2% of the pool balance at issuance) prepaid from the pool in September 2008. As of February 2009, the transaction has a total balance of $1,536,621,714, representing a cumulative collateral reduction of 1.2% since issuance.

The transaction has six investment-grade shadow-rated loans (totaling 5.9% of the pool). These shadow ratings are associated with the following loans: The London NYC Hotel Land Interest (1.8% of the pool), 24 Fifth Avenue Coop (1.0% of the pool), Gracie Gardens Coop (0.9% of the pool) and York Towers Coop (0.6% of the pool), all shadow-rated at AAA, and Huron Estates (1.1% of the pool) and Novi Meadows (0.6% of the pool), both shadow-rated at BBB (low). These loans continue to exhibit strong performance in line with their respective shadow ratings.

The full performance update report providing additional analytical detail is available by clicking the link below or by contacting us at info@dbrs.com.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.