S&P: Various Rating Actions Taken On JPMorgan Chase Commercial Mortgage Securities Trust 2006-LDP8
Our rating actions on the principal - and interest-paying certificates follow our analysis of the transaction, primarily using our criteria for rating U. S. and Canadian CMBS transactions, which included a review of the credit characteristics and performance of the remaining assets in the pool, the transaction's structure, and the liquidity available to the trust.
We raised our ratings on classes A-M and A-J to reflect our expectation of theavailable 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 current and future performance of the transaction's collateral, available liquidity support, and a significant reduction in the trust balance.
The downgrades on classes E and F reflect susceptibility to reduced liquidity support from the eight specially serviced assets ($239.6 million, 36.0%), two of which ($106.0, 15.9%) were transferred to the special servicer after the July 2016 remittance report. We also considered four loans ($61.1 million, 9.2%) that we believe are at a heightened risk of default and that we expect will be transferred to the special servicer in the near term. The downgrades also considered the credit support erosion that we anticipate will occur upon the eventual resolution of these assets. In addition, we lowered our rating onclass G to 'D (sf)' because we expect the accumulated interest shortfalls to remain outstanding for the foreseeable future. The class had accumulated interest shortfalls outstanding for seven consecutive months.
According to the July 15, 2016, trustee remittance report, the current monthlyinterest shortfalls totaled $182,315 and resulted primarily from:
Net appraisal subordinate entitlement reduction amounts totaling $146,579;and
Special servicing fees totaling $27,878.
The current interest shortfalls affected classes subordinate to and including class G.
The affirmations on the principal - and interest-paying certificates reflect our expectation that the available credit enhancement for these classes will be within our estimate of the necessary credit enhancement required for the current ratings and our views regarding the current and future performance of the transaction's collateral.
While available credit enhancement levels suggest further positive rating movement on class A-J and positive rating movements on classes B, C, and D, our analysis also considered the susceptibility to reduced liquidity support from the specially serviced assets and the loans that we expect are at a heightened risk of default in the near term.
We affirmed our 'AAA (sf)' rating on the class X interest-only (IO) certificates based on our criteria for rating IO securities.
TRANSACTION SUMMARY
As of the July 15, 2016, trustee remittance report, the collateral pool balance was $664.8 million, which is 21.7% of the pool balance at issuance. The pool currently includes 56 loans and two real estate-owned (REO) assets, down from 165 loans at issuance. Eight of these assets are with the special servicer, eight ($105.9 million, 15.9%) are defeased, and 40 ($406.7 million, 61.2%) are on the master servicers' combined watchlist. The master servicers, Wells Fargo Bank N. A. and Midland Loan Services (Midland), reported financial information for 96.4% of the nondefeased loans in the pool, of which 75.1% wasyear-end 2015 data, and the remainder was year-end 2014 data.
We calculated a 1.26x S&P Global Ratings' weighted average debt service coverage (DSC) and 81.0% S&P Global Ratings' weighted average loan-to-value (LTV) ratio using a 7.75% S&P Global Ratings' weighted average capitalization rate. The DSC, LTV, and capitalization rate calculations exclude seven ($136.2million, 20.5%) of the eight specially serviced assets, three ($38.8 million, 5.8%) of the four loans expected to be transferred to special servicing, and the eight defeased loans. The top 10 nondefeased assets have an aggregate outstanding pool trust balance of $371.5 million (55.9%). Using servicer-reported numbers, we calculated an S&P Global Ratings' weighted average DSC and LTV of 1.25x and 82.8%, respectively, for five of the top 10 nondefeased assets. Four of the remaining top 10 assets are either nonperforming assets or loans that we expect to be transferred to special servicing (details below), while according to Midland, the remaining top 10 asset was repaid in full before the July 2016 trustee remittance report.
To date, the transaction has experienced $96.6 million in principal losses, or3.1% of the original pool trust balance. We expect losses to reach approximately 6.2% of the original pool trust balance in the near term, based on losses incurred to date, additional losses we expect upon the eventual resolution of seven of the eight specially serviced assets, and three of the four loan that we expect to be transferred to special servicing in the near term.
CREDIT CONSIDERATIONS
As of the July 15, 2016, trustee remittance report, six loans ($133.6 million,20.1%) were with the special servicer, C-III Asset Management LLC (C-III). C-III has reported that two additional loans ($105.9 million, 15.9%) were transferred to special servicing after the July 2016 trustee remittance report. In addition, the master servicers indicated that three additional loans are in the process of being transferred to special servicing. We deemed the Lincoln Town Center loan, secured by a 82,943-sq.-ft. retail property in Lincolnton, N. C., to be credit-impaired because it has a nonperforming maturedballoon payment status and a low reported DSC of 0.98x as of year-end 2015. Asa result, we considered this loan to be at a heightened risk of default. Details of the two largest specially serviced assets, both of which are top 10nondefeased assets, are as follows:
The CNL/Welsh Portfolio Roll-Up loan ($103.4 million, 15.6%) is the largest nondefeased asset in the pool and has a total reported exposure of $103.4 million. The loan is secured by a portfolio of 10 industrial properties totaling 2,144,750 sq. ft. and three office properties totaling 232,690 sq. ft. located throughout the U. S. The loan, which has a performing matured balloon payment status, was transferred to the special servicer on July 11, 2016, because of imminent monetary default. The loan matured on July 7, 2016. The master servicer, Midland, stated that the borrower informed that the portfolio was under contract for sale with an expected closing date near the end of June 2016; however, that sale never closed. The reported DSC and occupancy as of year-end 2015 were 1.40x and 95.7%, respectively.
The Foothills Mall loan ($75.9 million, 11.4%) is the second largest nondefeased asset in the pool and has a total reported exposure of $78.4 million. The loan is secured by a 501,514-sq.-ft. regional mall in Tucson, Ariz. The loan, which has a nonperforming matured balloon payment status, was transferred to the special servicer on Dec. 8, 2015, because of monetary default. The loan matured on July 1, 2016. C-III stated that the property's leasing has struggled since a new outlet mall opened in the Tucson market and other regional malls in the market were renovated. The reported DSC for the nine months ended Sept. 30, 2015, was 0.91x, and reported occupancy was 82.0% as of March 2016. An appraisal reduction amount totaling $19.1 million is in effect against this loan. Based on new valuation received on the property, we expect a significant loss (60% or greater) upon this loan's eventual resolution.
The remaining six specially serviced assets each have individual balances thatrepresent less than 4.8% of the total pool trust balance. We estimated losses for the seven of the eight specially serviced assets, as well as three of the four loans expected to be transferred to special servicing, arriving at a weighted average loss severity of 52.6%.
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