S&P: Various Rating Actions Taken On Bear Stearns Commercial Mortgage Securities Trust 2004-PWR3
We raised our ratings on classes F and G to reflect our expectation of the available credit enhancement for these classes, which we believe is greater than our most recent estimate of necessary credit enhancement for the respective rating levels. The upgrades also follow our views regarding the collateral's current and future performance and trust balance's significant reduction.
The downgrades on classes K and L are due to ongoing interest shortfalls that we expect to remain outstanding in the foreseeable future. In addition, we lowered our rating on class L to 'D (sf)' due to credit support erosion that we expect would occur upon the eventual resolution of the sole specially serviced asset, the Great Northern Mall real estate owned (REO) asset ($32.8 million, 64.5%). Classes K and L had accumulated shortfalls outstanding for two consecutive months.
According to the July 11, 2016, trustee remittance report, the current monthlyinterest shortfalls totaled $67,396 and resulted primarily from:
Appraisal subordinate entitlement reduction (ASER) amounts totaling $60,539; and
Special servicing fees totaling $6,857.
The interest shortfalls affected all classes subordinate to and including class K.
The affirmations on classes H and J reflect our expectation that the availablecredit enhancement for these classes will be within our estimate of the necessary credit enhancement required for the current ratings and our views regarding the collateral's current and future performance.
While available credit enhancement levels suggest positive rating movements onclasses H and J, our analysis also considered the susceptibility to reduced liquidity support from the Great Northern Mall REO asset, either from an increase in ASER amount or if the master servicer deems the asset non-recoverable.
TRANSACTION SUMMARY
As of the July 11, 2016, trustee remittance report, the collateral pool balance was $50.9 million, which is 4.6% of the pool balance at issuance. The pool currently includes seven loans and one REO asset, down from 116 loans at issuance. One asset is with the special servicer, one loan ($490,591, 1.0%) isdefeased and two ($4.0 million, 7.8%) are on the master servicers' combined watchlist. The master servicers, Wells Fargo Bank N. A. and Prudential Asset Resources, reported year-end 2015 financial information for 34.9% of the nondefeased loans in the pool.
Excluding the specially serviced asset and defeased loan, we calculated a 1.11x S&P Global Ratings weighted average debt service coverage (DSC) and 47.6% S&P Global Ratings weighted average loan-to-value (LTV) ratio using a 7.34% S&P Global Ratings weighted average capitalization rate.
To date, the transaction has experienced $14.8 million in principal losses, or1.3% of the original pool trust balance. We expect losses to reach approximately 2.5% of the original pool trust balance in the near term, based on loss incurred to date and additional losses we expect upon the eventual resolution of the one specially serviced asset.
CREDIT CONSIDERATIONS
As of the July 11, 2016, trustee remittance report, the Great Northern Mall REO asset is the sole asset with the special servicer, C-III Asset Management LLC (C-III).
The Great Northern Mall REO asset is the the largest nondefeased REO asset in the pool and has a $33.3 million in total reported exposure. The asset is a 504,743-sq.-ft., regional mall located in Clay, N. Y. It was built in 1988 and renovated in 2003. The loan was transferred to special servicing effective Nov. 6, 2014, due to the borrower's notification of imminent loan maturity default on Jan. 1, 2015, after a 13-month extension was approved on the original Dec. 1, 2013 maturity. The asset became REO on July 28, 2015. The reported DSC and occupancy as of June 30, 2014, were 1.16x and 71.5% respectively. An ARA of $14.4 million is in effect for this asset. We expect amoderate loss, which is 26% to 59%, upon the asset’s eventual resolution.
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