DBRS Downgrades Three Classes and Confirms Three Classes of Bear Stearns Commercial Mortgage Securities Trust, Series 2007-TOP26

DBRS Limited (DBRS) has today downgraded three classes of the Commercial Mortgage Pass-Through Certificates, Series 2007-TOP26 issued by Bear Stearns Commercial Mortgage Trust, Series 2007-TOP26 as follows:

-- Class B downgraded to CCC (sf) from B (low) (sf)
-- Class C downgraded to C (sf) from CCC (sf)
-- Class D downgraded to C (sf) from CCC (sf)

Additionally, DBRS has confirmed the rating on the following classes:

-- Class AM at AAA (sf)
-- Class A-J at BB (sf)
-- Class E at C (sf)

All trends are Stable, with the exception of Classes C, D and E, which have ratings that do not carry trends. DBRS has also discontinued the ratings on Class A-1A and Class A-4, as the classes were fully repaid with the May 2017 remittance.

The rating downgrades reflect DBRS’s increased expectation of losses to the trust as the second-largest loan, One AT&T Center, representing 32.3% of the current pool balance, was recently transferred to special servicing in March 2017. The property, a 1.5 million square foot Class A office building located in downtown St. Louis, Missouri, is expected to be completely vacant by September 2017 and the servicer’s notes indicate foreclosure is expected by December 2017. DBRS expects the value has declined drastically from the issuance valuation of $207 million and anticipates the loss severity will be substantial at liquidation.

As of the May 2017 remittance, 19 loans remain in the pool with an outstanding principal balance of $338 million, representing a collateral reduction of 84.3% from issuance. Since June 2016, 164 loans have left the trust and four of those loans were liquidated from the trust. Since issuance, a total of 25 loans have been liquidated from the trust for a combined loss of $88.9 million.

Nine loans, representing 43.7% of the current pool balance, including the One AT&T Center loan, did not repay at the scheduled 2016 or 2017 maturity. The remaining loans are scheduled to mature between 2018 and 2027. Based on the most recently reported financials available for the underlying loans, the transaction has a weighted-average (WA) debt service coverage ratio (DSCR) and an exit debt yield of 2.06 times (x) and 18.5%, respectively.

As of the May 2017 remittance, seven loans are in special servicing and three loans are on the servicer’s watchlist, representing 40.6% and 6.4% of the current pool balance, respectively.

At issuance, DBRS shadow-rated the largest loan, One Dag Hammarskjöld Plaza (Prospectus ID#1, 44.4% of the current pool balance) as investment-grade. DBRS has today confirmed that the performance of the loan remains consistent with investment-grade characteristics.

The rating assigned to Class A-J materially deviates from the higher rating implied by the quantitative results. DBRS considers a material deviation to be a rating differential of three or more notches between the assigned rating and the rating implied by the quantitative results that is a substantial component of a rating methodology; in this case, the assigned rating that reflects the uncertain loan level event risk.

DBRS has provided updated loan-level commentary and analysis for pivotal and noteworthy loans in the pool in the DBRS commercial mortgage-backed securities (CMBS) IReports platform. Registration is free. To view these and future loan-level updates provided as part of DBRS’s ongoing surveillance for this transaction, please register or login at www.ireports.dbrs.com.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The principal methodologies are North American CMBS Rating Methodology (January 2017) and CMBS North American Surveillance (December 2016), which can be found on dbrs.com under Methodologies.

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