Moody's Nukes 163 CMBS Classes Due To Maguire Toxic Exposure

Moody's has placed the following CMBS Classes on Downgrade review due to Maguire Properties Exposure:

  • 15 CMBS Classes of WBCMT 2006-C28
  • 10 CMBS Classes of MSC 2004-TOP13
  • 14 CMBS Classes of WBCMT 2005-C18
  • 14 CMBS Classes of JPMCC 2006-LDP8
  • 14 CMBS Classes of GSMS 2005-GG4
  • 17 CMBS Classes of GSMSC II 2007-GG10
  • 19 CMBS Classes of CSMC 2007-C4
  • 7 CMBS Classes of GCCFC 2003-C2
  • 18 CMBS Classes of CSMC 2007-C3
  • 12 CMBS Classes of BACM 2005-3
  • 11 CMBS Classes of BSCMS 2004-TOP14
  • 12 CMBS Classes of BACM 2006-6

And here is the reason why there is nothing to worry about in CRE, with or without the upcoming bailout.

Maguire continues to experience ongoing levels of high effective leverage, declining operating performance, and an inability to cover dividends from operating cash flow. Currently, Maguire has a low fixed coverage ratio of 0.87x (recurring EBITDA as a percentage of interest expense plus deferred dividends and capitalized interest) as of June 30, 2009, as well as high leverage (debt plus preferred equity as a share of gross assets) of 96.2% and high secured debt as a share of gross assets of 91.2%.

As part of a plan to put the company back on track with a focus on a smaller core portfolio, Maguire announced on August 10, 2009 that they had disposed of one property and its associated debt from their wholly owned portfolio. In addition, Maguire announced that they had contacted the master servicer for six mortgage loans in commercial mortgage backed securities ("CMBS") transactions and advised them that they would no longer fund cash shortfalls associated with the respective mortgages. The aforementioned loans are not part of this transaction.

Most Maguire properties are located in California in either Los Angeles or Orange Counties, both of which have experienced significant rent and occupancy declines over the last year. Over the next two years, Torto Wheaton Research ("TWR") has forecasted Los Angeles County office rents to decline from $26.67 per square foot ("PSF") to $23.85 PSF and vacancy rates to increase from 14.4% to 19.0%. A similar outcome is forecast for Orange County where average rents are expected to decline from $25.10 to $20.75 PSF and vacancy rates are expected to increase from 19.1% to 20.2%.

Mr Pink's long time buddy, Jon Brooks, can not be too happy.