DBRS Confirms Eleven, Downgrades 9 Classes of Morgan Stanley Capital I Trust, Series 2007-TOP25

DBRS has today confirmed Classes A-1 through A-M, including notional class X, at AAA with Stable trends. DBRS has also confirmed Classes K through O. All six shadow ratings have also been confirmed.

In addition, DBRS downgraded 9 classes, Classes A-J through J, based on the following: the most recent annual net cash flows have declined for approximately 47% of the pool, based on balance from DBRS' NCFs at issuance, the high percent of loans in special servicing and the percentage of loans on the DBRS’ HotList. Losses from the five delinquent and specially serviced loans are expected to eliminate six classes, Classes K through P, and erode a portion of Class J. Because DBRS expects further cash flow decline in 2009, the trend remains Negative for Classes F through O.

The majority of the DBRS anticipated losses are associated with Prospectus ID#4 (Village Square). This loan is more than 90 days delinquent and was transferred to the special servicer in February 2009. The property is a 237,834 sf shopping center anchored by an 18-screen movie theater located in Las Vegas, with the balance of tenants consisting of local retailers and some office tenants. Based on the June 2009 rent roll, the property’s occupancy has decreased to 75% compared with 90% at issuance, and it continues to lose tenants. There is an additional 7.3% of the NRA that has already expired, or will expire during the remainder of 2009, putting further downward pressure on cash flow. An updated appraisal was received in March 2009, at a value of $38.5 million, which represents a 48% decrease, compared to the appraised value at issuance. This updated value resulted in an appraisal reduction in the amount of $26.3 million, which is, in part, causing interest shortfalls to the most junior six classes in the transaction. A previous modification proposal submitted by the borrower has been rejected, and while discussions continue, the special servicer is preparing for foreclosure. DBRS is assuming that a significant principal loss will be incurred.

DBRS CMBS methodology assumes a mean reverting 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. As a result, the downgrades are related to loan specific, increased probability of default, caused by a deterioration of cash flow, for many loans within the transaction, as compared to property value declines.

The pool is heavily concentrated in loans secured by retail and hotel properties, with each sector showing signs of stress in the current economic environment. As such, the DBRS HotList is concentrated in these property types. There are 16 loans (13.8% of the transaction’s outstanding balance) found on the DBRS HotList.

As part of its review, DBRS analyzed the six shadow-rated loans, the servicer’s watchlist, the delinquent loans, the specially serviced loans and the top ten loans. Combined, these loans represent 54.1% of the 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.