DBRS Confirms Ten, Downgrades 17 Classes of Bear Stearns Commercial Mortgage Securities Trust 2007-PWR18

DBRS has today confirmed Classes A-1 through AM-A, including notional classes X-1 and X-2 at ‘AAA’ with stable trends. With the exception of the GGP Portfolio (Prospectus ID#2), the remaining three shadow ratings have also been confirmed.

In addition, DBRS downgraded 17 classes, Classes AJ through Q, based on the following: the most recent annual net cash flows have declined for approximately 51% of the pool, based on balance from DBRS' NCFs at issuance, the high percent of loans in special servicing and the percentage of loans on the DBRS’ HotList. Losses from seven loans in special servicing are currently projected to wipe out unrated Class S and erode a portion of Class Q. Additionally, the credit enhancement to the lower rated classes is low, and as a result of the significant decline in overall performance for many of the underlying loans, the required credit enhancement at these lower rating categories has increased. Also, because DBRS expects further cash flow decline in 2009, the trend remains Negative for Classes K through Q.

The majority of DBRS’ anticipated losses are associated with Prospectus ID#5 (RRI Hotel Portfolio). This loan is secured by 79 Red Roof Inn (RRI) hotels (9,423 rooms) across 24 states. As with many lodging properties, RRI performance has declined. The YE2007 financial performance was not reported; however, YE2008 RevPAR dropped to $36.51 from $37.64 at issuance, and year-to-date, as of June 30, 2009, further plummeted to $29.00. DSCR fell to 1.17x, per YE2008 reporting, and 0.86x, as of June 20, 2009, compared to 1.33x, at issuance. The loan transferred effective June 8, 2009, due to payment default, as well as the borrower's indication that it is unwilling and unable to remit future payments. The loan is a pari-passu piece of a $465 million loan. The DBRS liquidation scenario assumes significant losses on this loan.

DBRS CMBS methodology assumes a mean reverting capitalization rate applied to all loans and therefore the current market's property value deterioration was already accounted for within the DBRS ratings at issuance. As a result, the downgrades are more related to the loan specific increased probability of default, caused by a deterioration of cash flow, for many loans within the transaction, as compared to property value declines.

The pool is heavily concentrated by loans secured by retail and hotel properties, each sector showing signs of stress in the current economic environment. As such, the DBRS Hotlist is concentrated in these property types. There are 17 loans (14.3% of the transaction’s outstanding balance) found on the DBRS HotList.

As part of its review, DBRS analyzed the three shadow-rated loans, the servicer’s watchlist, the specially serviced loans, and the remaining top ten loans, which comprise approximately 64% of the current pool balance.

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

The applicable methodologies are CMBS Rating Methodology and CMBS Surveillance, which can be found on our website under Methodologies.

This is a Structured Finance rating.