DBRS Morningstar Downgrades Two Classes of GE Commercial Mortgage Corporation, Series 2007-C1, Removes from Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) downgraded the ratings of the following two classes of Commercial Mortgage Pass-Through Certificates, Series 2007-C1 issued by GE Commercial Mortgage Corporation, Series 2007-C1, as follows:

-- Class A-M to C (sf) from BB (low) (sf)
-- Class A-MFX to C (sf) from BB (low) (sf)

DBRS Morningstar also removed the Under Review with Negative Implications for both Classes.

DBRS Morningstar maintained the Interest in Arrears designation for Classes A-M and A-MFX, both of which have ratings that do not carry trends.

The ratings downgrades are the result of the negative outlook and significant value decline of the collateral property behind the Wellpoint Office Tower loan (Prospectus ID#10), which represents 45.5% of the current pool balance. On February 13, 2020, DBRS Morningstar placed the ratings for both rated Classes in this transaction Under Review with Negative Implications after initially placing them Under Review with Developing implications in November 2019, following losses to the trust in the amount of $196.7 million with the November 2019 remittance. At that time, the Wellpoint Office Tower loan was a performing loan, but that status changed in February 2020 when the loan was transferred to special servicing for imminent maturity default.

At the time of the February 2020 rating actions, DBRS Morningstar was awaiting an updated resolution strategy and appraisal value, which has been provided as of June 2020. According to the June 2020 appraisal, the collateral property’s value declined to $39.1 million ($87 per square foot (sf)) compared with the issuance appraised value of $150.0 million ($335 per sf), suggesting an elevated loss severity in excess of 75% and supporting the ratings downgrade to C (sf) for the two remaining rated classes.

The 450,000 sf former single-tenant office property is located in Woodland Hills, California, and was built in 1977. WellPoint Health Network Inc. (WellPoint Health), an affiliate of Anthem Health, was the sole tenant through year-end 2019; however, in July 2018, WellPoint Health announced that it would not renew its lease and would be moving to the nearby Warner Center. According to the July 2020 servicer commentary, the servicer is pursuing foreclosure following the special servicer’s denial of the borrower’s proposal for a discounted payoff. Including the current outstanding loan balance, all outstanding fees and advances, and a 1.0% special servicer resolution fee, the current exposure on the loan is $125.0 million.

Since issuance, the transaction has experienced collateral reduction of 93.8%, but 17.4% of that is a result of realized losses, which totaled $643.3 million through February 2020. The only other remaining loan in the pool, JP Morgan Portfolio (Prospectus ID#7; 54.5% of the current pool balance), has been in special servicing since March 2017 and is likely to resolve with a loss severity near 100.0%. That loss is expected to combine with the loss at resolution for the Wellpoint Office Tower loan to take total trust losses up through the most senior remaining Class A-M, with the transaction having an overall outstanding balance of $246.7 million as of the July 2020 remittance.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

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

The principal methodology is North American CMBS Surveillance Methodology (March 6, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. 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.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release:
https://www.dbrsmorningstar.com/research/358308.

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@dbrsmorningstar.com.

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

Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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