DBRS Upgrades Three Classes and Confirms Two Classes of BSCMS 2007-PWR18

DBRS Limited (DBRS) upgraded the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2007-PWR18 issued by Bear Stearns Commercial Mortgage Securities Trust, Series 2007-PWR18 as follows:

-- Class A-J to BB (sf) from CCC (sf)
-- Class AJ-A to BB (sf) from CCC (sf)
-- Class B to B (sf) from CCC (sf)

In addition, DBRS confirmed the ratings on the following classes:

-- Class C at C (sf)
-- Class D at C (sf)

All trends are Stable, with the exception of Class C and D, which have ratings that do not carry trends. In addition, the interest in arrears designation was removed for Class B, with the January 2018 remittance.

The rating upgrades reflect the increased credit support to the bonds as a result of the successful repayment of Classes A-1A, A-4, A-M and AM-A. With those repayments, the Class A-J certificate is now the most senior class outstanding. Over the past year, 116 loans have been repaid from the trust, representing a principal paydown of approximately $1.2 billion, and one loan was liquidated at a loss severity of 74.6% and a loss to the trust of $5.5 million. As of the January 2018 remittance, only 12 loans remain in the trust, with an outstanding balance of $140.8 million. This represents a collateral reduction of 94.4% since issuance as a result of successful loan repayments, scheduled amortization, realized losses and recovered proceeds from loans liquidated from the pool.

As of the January 2018 remittance, 12 loans remain in the pool. All loans are reporting YE2016 financials and, based on those figures, the weighted-average (WA) debt-service coverage ratio (DSCR) is 0.88 times (x), compared with the YE2015 DSCR of 1.19x. The pool is concentrated as the largest loan, Prospectus ID#6 – Marriott Houston Westchase, represents 51.3% of the current pool balance. The loan transferred to special servicing in July 2017 due to imminent default as the loan was not expected to refinance at loan maturity in November 2017. The loan is secured by a 600-room full-service hotel located in Houston, Texas, and reported a YE2016 DSCR and debt yield of 0.49x and 4.0%, respectively. Due to the general difficulties in low oil prices and increased supply in the Houston market, the property has reported a DSCR of under 1.0x since YE2015. However, although the T-12 July 2017 occupancy, ADR and RevPAR metrics of 63.3%, $121.93 and $77.13, respectively, have all shown year-over-year declines, the subject continues to perform above its competitive set across all three metrics. The November 2017 appraisal value was reported at $72.0 million, reflective of a 46.7% decline from the issuance value. Although the 2017 value remains relatively close to the total exposure of approximately $73.2 million, DBRS anticipates a loss could be higher than the value suggests, given the market conditions and the amount of capital that would likely be necessary to reposition the asset.

There are five loans on the servicer’s watchlist, representing 29.3% of the pool balance, and six loans in special servicing, representing 70.2% of the pool balance. The loans in special servicing transferred between July 2017 and December 2017 for maturity default. For additional information on those loans, please see the DBRS Loan Commentary on the DBRS Viewpoint platform.

All ratings will be subject to ongoing surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed or discontinued by DBRS.

DBRS has provided updated loan-level commentary and analysis for the remaining loans in the transaction, in the DBRS Viewpoint platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or log into DBRS Viewpoint at www.viewpoint.dbrs.com.

The ratings assigned to Classes A-J and AJ-A materially deviate from the higher ratings implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology. The deviations are warranted given uncertain loan level event risk.

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

The principal methodology is CMBS North American Surveillance, which can be found on dbrs.com under Methodologies. For a list of the Structured Finance related methodologies that may be used during the rating process, please see the DBRS Global Structured Finance Related Methodologies document on www.dbrs.com. Please note that not every related methodology listed under a principal Structured Finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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 under Related Documents or by contacting us at info@dbrs.com.

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

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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