DBRS Confirms 14, Downgrades Six Classes of Morgan Stanley Capital I Trust, Series 2007-TOP 27

DBRS has today downgraded six classes in the Morgan Stanley Capital I Trust, Series 2007-TOP27 transaction; Classes H through M were downgraded and placed on trend Negative, Class G was downgraded but remains on trend Stable. In addition, DBRS has confirmed Classes A-1 through F with Stable trends and changed the trend on Classes N and O to Negative. All 17 shadow ratings have been confirmed.

The downgrades are a result of the following: the most recent annual net cash flows have declined in approximately 32% of the loans from DBRS's NCF at issuance, the increase in the number of loans added to the DBRS HotList, 3.5% of the pool from 1.8% in February 2009, and the increased loss expected from the specially serviced loans. While losses from seven 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 anticipates further cash flow decline on the underlying assets in 2009 and is therefore leaving Classes 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 is 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) remains strong. In addition, the weighted-average loan-to-value (assuming the original appraised values) for the loans in the pool is low at 60.2%. DBRS loan-to-value at issuance was 71.2%.

There are nine loans (3.5% of the transactions outstanding balance) found on the DBRS HotList; this is an increase in the number of loans from the previous review. The loans on the HotList are primarily loans secured by hotels that have experienced a significant decline in performance over the last year. In addition to the hotel loans, two HotList loans are retail loans with exposure to bankrupt tenants.

DBRS has revised its total loss estimate for the seven specially serviced loans to $15 million, which will be contained to the unrated Class P. This revised estimate has increased from $6 to 10 million due to property performance and workout options brought to light since the last review.

As part of its review, DBRS analyzed the top ten loans, the 17 shadow-rated loans, the servicer’s watchlist and the six specially serviced loans, which comprises approximately 48% of the current pool balance.

Note:
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.