DBRS Confirms 13, Downgrades Ten Classes of Bear Stearns, 2007-TOP 26

DBRS has today downgraded ten classes in the Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26 transaction, Classes E through O. In addition, DBRS has confirmed all additional ratings with Stable trends. The shadow ratings on 16 loans have also been confirmed.

The downgrades are a result on the following: the most recent annual net cash flows have declined for approximately 30% of the loans from DBRS's NCF at issuance, the increase in the number of loans added to the DBRS HotList since its last review in March 2009 and the increased risk surrounding a large specially serviced loan (Viad Corporate Center, 3.1% of the current pool balance). While losses from three loans in special servicing are currently projected to be contained to the unrated Class P, the credit enhancement to the lower rated classes is low and as a result of the significant decline in overall performance for many of the underlying loans, the required credit enhancement at these lower rating categories has increased prompting the downgrades. DBRS expects further cash flow decline in 2009 and is therefore leaving Class H through Class O on trend Negative.

DBRS CMBS methodology assumes a mean reverted capitalization rate applied to all loans and therefore the current market's property value deterioration was already accounted for within the DBRS ratings at issuance. The downgrades are a result of loan specific, increased probability of default caused by the deterioration of cash flow for many loans within the transaction as compared to property value declines.

Performance of the top ten loans (36% of the current pool balance), with exception of Prospectus ID#6, remain strong. In addition, the average loan to value (assuming the original appraised values) for the loans in the pool was low at 57.5%. DBRS loan to value at issuance was 70.1% .

There are nine loans (4.2% of the transactions outstanding balance) found on the DBRS HotList; this is an increase in the number of loans from the previous review. One loan, which was previously on the DBRS Hotlist, transferred to special servicing due to imminent default; the borrower has kept the loan current. Prospectus ID#6, (Viad Corporate Center, 3.1%) is secured by an office property located in Phoenix. The property has experienced downward pressure on rents and increased vacancy. With market vacancy increasing, the loan remains a concern for DBRS as the borrower's decision to continue to spend money on leasing commissions and tenant improvements, among other expenses, for the property could be influenced by market conditions. However, the loan is at an attractive leverage point of $136 psf and should still cover its debt service obligations based on the February 2009 rent roll. While DBRS is not projecting a realized loss beyond servicing fees at this time, the loan has been modeled with a stressed cash flow and is requiring higher credit enhancement within the model. The second loan in special servicing, Prospectus ID#118 (The Plaza at Jordan Creek Crossing, 0.2%) is secured by a mixed-use building located in West Des Moines, Iowa. The occupancy of the property was last reported to be 46.5%, as of the September 2008 rent roll. The loan was transferred to special servicing given the borrower’s inability to continue to service the debt. DBRS expects losses associated with the loan to be contained to the unrated Class P.

As part of its review, DBRS analyzed the top ten loans, the 16 shadow-rated loans, the servicer’s watchlist and the three specially serviced loans, which comprises approximately 51% of the current pool balance.

The details of DBRS’s analysis can be found in an updated Surveillance Report.

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.