One of the biggest liquidations for a TOP CMBS with a significant loss severity, at 86% or $51.2 million, has occurred.

Barclays Capital analysts, in a report released today, said that this is notable because these offerings usually have better underwritten collateral.

The analysts reported that the $59.7 million Village Square loan securitized in the MSC 2007-T25 deal was reported as liquidated. This happened as December 2011 remittance reports were being released.

Given the significance of this liquidation, analysts decided to examine it inspite of its small amount – less than $100 million outstanding loan balance.

They noted that the property is a 237,834 square foot mixed-use, office and retail property located in Las Vegas. A theater is the anchor tenant for the property and C-III Capital Partners was the reported special servicer for the deal.

The loan was transferred to special servicer effective February 2009 because of a payment default resulting from a drop in occupancy. The asset became REO effective October 2010.

Based on Real Capital Analytics data, the asset was sold in November 2011 for $17.5 million to Westport Capital Partners. The new sponsor, Barclays analysts reported, meant to undertake an aggressive leasing and marketing program aside from property upgrades to reposition this property as the premier retail and office complex in Summerlin Las Vegas community.

The entire December loss allocated to the trust was roughly $54.1 million attributed to Village Square and another smaller loan liquidation. As a result, tranches G through P were written down with losses, and tranche F took partial loss. It was originally rated 'BBB+'.

The current subordination level on AJ tranche is only 6.33%, which Barclays analysts said dropped from 9.875% at issuance. On AMs, the level dipped to 14.23% from the original 17%.

The general effect of high severity liquidations is expected to be more visible on TOP deals since they historically have had lower original credit enhancement levels.

Barclays analysts cited the $3.85 milion ASER reimbursement together with the $417.6 thousand period monthly servicing fee payment that is associated with the Village Square liquidation.

This has lead to reimbursement of interest shortfalls, which were reimbursed to tranches F through P. This covers tranches liquidated in this remittance period. The lowest tranche, P got partial interest shortfall reimbursement while $577 thousand is still not payed, Barclays analysts noted. 

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