DBRS Upgrades Three Classes and Confirms Two Classes of Morgan Stanley Re-REMIC Trust 2010-GG10

DBRS, Inc. (DBRS) has today upgraded the ratings for three classes of Re-REMIC Pass-Through Certificates, Series 2010-GG10 issued by Morgan Stanley Re-REMIC Trust 2010-GG10 (MSRR 2010-GG10) as follows:

-- Class A4 to A (high) (sf) from BBB (high) (sf)
-- Class A4B to A (high) (sf) from BBB (high) (sf)
-- Class A4B-2 to A (high) (sf) from BBB (high) (sf)

DBRS has also confirmed the following classes:

-- Class A4A at AAA (sf)
-- Class A4B-1 at AAA (sf)

All trends are Stable.

The rating upgrades reflect the improved credit characteristics of the underlying commercial mortgage-backed security (CMBS) bond as a result of scheduled loan amortization, successful loan repayment, proceeds recovered from specially serviced loans and stabilizing cash flows on performing loans. The transaction is a resecuritization collateralized by the beneficial interests in one super-senior CMBS pass-through certificate from an underlying transaction that was securitized in 2007, in addition to the beneficial interests in two CMBS resecuritization certificates issued in 2009, which are also collateralized by the same underlying 2007 vintage CMBS transaction. The MSRR 2010-GG10 resecuritization consists of a senior/subordinate pass-through sequential-pay structure intended to contain any potential transaction-specific losses within the A4B classes. DBRS has assigned ratings to the exchangeable certificates (as highlighted above).

The underlying CMBS certificate is GS Mortgage Securities Corporation II, Commercial Mortgage Pass-Through Certificates Series 2007-GG10, Class A-4. Although DBRS does not publicly rate the underlying transaction, a detailed level of analysis was performed by using the Commercial Real Estate Finance Council Investor Reporting Package files from the latest remittance period. As of the March 2017 remittance, the underlying transaction had a current balance of $2.8 billion with 66 loans remaining in the pool, representing a collateral reduction of 62.7% since issuance. There are 48 loans, representing 60.1% of the pool balance, on the servicer’s watchlist, most of which are being monitored for upcoming maturity. Ten loans, representing 12.3% of the pool balance, are in special servicing. All loans in the transaction are scheduled to mature in the next 12 months, and as of the most recent financial reporting available, the transaction has a weighted-average debt yield of 7.1%, which indicates that some borrowers may have difficulty securing refinance capital at maturity.

DBRS analyzed the underlying certificate based on the performance of the underlying loans and the transaction structure. The underlying transaction was analyzed independently by DBRS, focusing on the largest assets, the specially serviced loans and the loans on the servicer’s watchlist. This was done in an effort to make adjustments to the pivotal loans within the transaction that carry a higher likelihood of default. To simulate realized losses expected on delinquent loans, DBRS ran a liquidation scenario using a haircut to the latest appraisal to account for additional expenses and/or potential future value decline where merited. Hope notes of previously modified loans were assumed at a full loss and were modified as applicable. Any accrued interest was further assumed as a loss and applied against the bond stack, reducing the DBRS liquidated credit enhancement.

The resulting weighted-average credit enhancement requirements for all the loans in the underlying pool at each respective rating category were then compared with the actual credit enhancement provided to the contributed certificate within the underlying CMBS structure.

The ratings are dependent on the continued performance of the underlying CMBS transaction and do not address the likelihood of additional trust fund expenses.

The ratings assigned to Classes A4, A4B and A4B-2 materially deviate from the higher ratings implied by the Large Pool Multi-borrower Parameters. DBRS considers a methodology deviation when there is a rating differential of three or more notches between the assigned rating and the rating implied by the Large Pool Multi-borrower Parameters; in this case, the assigned ratings reflect uncertain loan level event risk associated with the significant upcoming loan maturities.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on www.dbrs.com under Methodologies.