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TEXT-S&P cuts JLOC XXVIII class C; afms rtgs on three classes
March 1, 2012 / 6:51 AM / 6 years ago

TEXT-S&P cuts JLOC XXVIII class C; afms rtgs on three classes

(The following statement was released by the rating agency)

March 01 -

OVERVIEW

-- JLOC XXVIII is a property sales-type CMBS transaction that was arranged by Morgan Stanley Japan Securities Co. Ltd.

-- We have lowered to ‘B (sf)’ our rating on the class C senior trust certificates because we believe that the likely recovery prospect for the related collateral properties is under downward pressure, given the limited remaining period until the transaction’s legal final maturity date.

-- We have affirmed our ‘A (sf)’ rating on class B and removed the rating from CreditWatch negative because we expect principal redemption for this class--currently the transaction’s highest-level tranche--to continue to progress, given that additional collateral properties are set to be sold.

-- We have affirmed our ‘CCC (sf)’ ratings on the class D senior trust certificates and on Harajuku Holding TMK’s series 4-2 floating-rate mezzanine specified bonds.

Standard & Poor’s Ratings Services today said that it has lowered to ‘B (sf)’ from ‘BB- (sf)’ its rating on the class C senior trust certificates issued under the JLOC XXVIII transaction (see list below). At the same time, we affirmed our ‘A (sf)’ rating on the class B senior trust certificates and removed the rating from CreditWatch with negative implications. We initially placed the rating on class B on CreditWatch negative on April 26, 2011. Then, on June 15, 2011, we simultaneously lowered the rating on class B to ‘A (sf)’ from ‘AA (sf)’ and kept it on CreditWatch negative. Today, we also affirmed our ‘CCC (sf)’ ratings on the class D senior trust certificates and on Harajuku Holding TMK’s series 4-2 floating-rate mezzanine specified bonds (also listed below). The class A senior trust certificates and Nakano Holding TMK’s series 3-2 floating-rate mezzanine specified bonds have already been fully redeemed.

Of the four specified bonds (two senior and two mezzanine specified bonds) issued by two obligors that initially backed the transaction, two specified bonds (one senior and one mezzanine specified bond) issued by one obligor remain. The two remaining specified bonds originally represented about 51% of the total initial issue amount of the transaction.

The asset manager is still in the process of selling the properties backing the specified bonds in line with the property sales plan. Nevertheless, we believe that completing collection through the sales of the related collateral properties will require some time, as many of these properties remain unsold.

The performance of the properties backing the remaining specified bonds is almost within the scope of our projection as of September 2011, when we lowered our assumption regarding the likely collection amount from these properties and reviewed our ratings. However, we have revised downward our assumption with respect to the likely collection amount from the collateral properties this time because, with the transaction’s legal final maturity date only seven months away, it is our view that the likely recovery prospect for the related collateral properties is under downward pressure. We currently assume the combined value of the properties to be about 57% of our initial underwriting value, compared with 63% of our underwriting value as of September 2011. We today lowered our rating on class C to reflect this revised assumption.

Meanwhile, we affirmed our rating on class B and removed the rating from CreditWatch negative because we expect the redemption of this class, which is already partly redeemed, to further progress, given that additional collateral properties are set to be sold.

In addition, we affirmed our ratings on the class D senior trust certificates and Harajuku Holding TMK’s series 4-2 floating-rate mezzanine specified bonds because both the trust certificates and mezzanine specified bonds are already rated ‘CCC (sf)'.

JLOC XXVIII is a property sales-type commercial mortgage-backed securities (CMBS) transaction. The senior trust certificates and mezzanine specified bonds were backed by 567 real estate properties. Morgan Stanley Japan Securities Co. Ltd. served as the arranger for this transaction.

The ratings reflect our opinion on the likelihood of the full payment of interest and the ultimate repayment of principal by the transaction’s legal final maturity date in October 2012 for the class B to D senior trust certificates and the Harajuku Holding TMK series 4-2 floating rate specified bonds.

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