Magazine article Mortgage Banking

Moody's Downgrades Three Classes of MeriStar

Magazine article Mortgage Banking

Moody's Downgrades Three Classes of MeriStar

Article excerpt

NEW YORK-BASED MOODY'S INVESTORS SERvice downgraded the ratings of three classes and confirmed the ratings of three classes of MeriStar Commercial Mortgage Trust, commercial mortgage pass-through certificates, series 1999-C1 as follows; class A-1, $38,022,393, fixed, confirmed at Aaa; class A-2, $138,000,000, fixed, confirmed Aaa; class X, notional, confirmed at Aaa; class B, $50,000,000, fixed, downgraded to A3 from Aa3; class C, $42,000,000, fixed, downgraded to Ba1 from Baa1; and class D, $36,000,000, fixed, downgraded to B2 from Ba1.

The certificates evidence beneficial interests in a trust fund, the principal asset of which is a mortgage loan secured by 19 hotel properties located in 10 states. The portfolio has a total of 5,978 guestrooms. Brands include Hilton (six properties), Sheraton (three properties), Marriott (three properties), Embassy Suites (two properties) and Courtyard by Marriott (one property). As of the Oct. 5, 2004, distribution date, the transaction's principal balance decreased by approximately 7.9 percent, from $330 million to $304 million, because of amortization.

Moody's is downgrading classes B, C and D due to poor performance. The "low debt-service reserve" feature in the loan documents was triggered in October 2002, and has resulted in the accumulation of a reserve account with a current balance of approximately $31.5 million, Moody's said. The reserve account may be released upon achievement of certain cash-flow and debt-service coverage hurdles. Additionally, as the result of a loan modification in mid-2003, the reserve account may be released to reimburse the borrower for furniture, fixtures and equipment (FF & E) expenditures completed at the properties. Moody's noted that while FF & E spending on the collateral properties should improve their competitive position over time, the release of the cash collateral has had a detrimental impact on the credit quality of the loan.

The properties are owned by entities associated with MeriStar Hospitality Corporation, Arlington, Virginia, whose senior debt is rated B2 by Moody's. The firm owns 79 primarily upscale hotels in 23 states.

Despite recovery in many hospitality markets, performance of the collateral properties continues to decline. …

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