Approximately $941.5 Million of Structured Securities Affected
New York, January 13, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of seven classes
and affirmed 13 classes of LB-UBS Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2004-C8,
as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-5, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-6, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X-CP, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-J, Downgraded to Aa2 (sf); previously on
Dec 17, 2010 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to A2 (sf); previously on Dec 17,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Baa2 (sf); previously on Dec 17,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to Ba2 (sf); previously on Dec 17,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Caa1 (sf); previously on Dec 17,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Ca (sf); previously on Dec 17,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to C (sf); previously on Dec 17,
2010 Ca (sf) Placed Under Review for Possible Downgrade
Cl. H, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. J, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. K, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
RATINGS RATIONALE
The downgrades are due to higher expected losses for the pool from specially
serviced and troubled loans. The affirmations are due to key parameters,
including Moody's loan to value (LTV) ratio, Moody's
stressed debt service coverage ratio (DSCR) and the Herfindahl Index (Herf),
remaining within acceptable ranges. Based on our current base expected
loss, the credit enhancement levels for the affirmed classes are
sufficient to maintain their current ratings.
On December 17, 2010, Moody's placed seven classes on
review for possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
9.1% of the current pool balance. At last full review,
Moody's cumulative base expected loss was 8.2%. Moody's
provides a current list of base and stress scenario losses for conduit
and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
Depending on the timing of loan payoffs and the severity and timing of
losses from specially serviced loans, the credit enhancement level
for investment grade classes could decline below the current levels.
If future performance materially declines, the expected level of
credit enhancement and the priority in the cash flow waterfall may be
insufficient for the current ratings of these classes.
Moody's analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these
expectations. Performance that falls outside an acceptable range
of the key parameters may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated during
the current review. Even so, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to an improvement or decline in collateral
performance, such as increased subordination levels due to amortization
and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the current stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010
and 2011; we expect overall a sluggish recovery in most of the world's
largest economies, returning to trend growth rate with elevated
fiscal deficits and persistent unemployment levels.
The principal methodology used in these ratings were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in July 2000,
and "Moody's Approach to Rating Large Loan/Single Borrower
Transactions" published in April 2005.
In addition to methodologies and research, Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
Moody's review incorporated the use of the Excel-based CMBS
Conduit Model v 2.50 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 level are driven
by property type, Moody's actual and stressed DSCR,
and Moody's property quality grade (which reflects the capitalization
rate used by Moody's to estimate Moody's value). Conduit
model results at the B2 level are driven by a paydown analysis based on
the individual loan level Moody's LTV ratio. Moody's
Herfindahl score (Herf), a measure of loan level diversity,
is a primary determinant of pool level diversity and has a greater impact
on senior certificates. Other concentrations and correlations may
be considered in our analysis. Based on the model pooled credit
enhancement levels at Aa2 and B2, the remaining conduit classes
are either interpolated between these two data points or determined based
on a multiple or ratio of either of these two data points. For
fusion deals, the credit enhancement for loans with investment-grade
credit estimates is melded with the conduit model credit enhancement into
an overall model result. Fusion loan credit enhancement is based
on the credit estimate of the loan which corresponds to a range of credit
enhancement levels. Actual fusion credit enhancement levels are
selected based on loan level diversity, pool leverage and other
concentrations and correlations within the pool. Negative pooling,
or adding credit enhancement at the credit estimate level, is incorporated
for loans with similar credit estimates in the same transaction.
Moody's uses a variation of Herf to measure diversity of loan size,
where a higher number represents greater diversity. Loan concentration
has an important bearing on potential rating volatility, including
risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 15
compared to 36 at Moody's prior full review.
In cases where the Herf falls below 20, Moody's also employs the
large loan/single borrower methodology. This methodology uses the
Excel-based Large Loan Model v 8.0 and then reconciles and
weights the results from the two models in formulating a rating recommendation.
The large loan model derives credit enhancement levels based on an aggregation
of adjusted loan level proceeds derived from Moody's loan level LTV ratios.
Major adjustments to determining proceeds include leverage, loan
structure, property type, and sponsorship. These aggregated
proceeds are then further adjusted for any pooling benefits associated
with loan level diversity, other concentrations and correlations.
Moody's ratings are determined by a committee process that considers
both quantitative and qualitative factors. Therefore, the
rating outcome may differ from the model output.
The rating action is a result of Moody's on-going surveillance
of commercial mortgage backed securities (CMBS) transactions. Moody's
monitors transactions on a monthly basis through two sets of quantitative
tools -- MOST® (Moody's Surveillance Trends) and CMM
(Commercial Mortgage Metrics) on Trepp -- and on a periodic
basis through a comprehensive review. Moody's prior full review
is summarized in a press release dated April 15, 2010. Please
see the ratings tab on the issuer / entity page on moodys.com for
the last rating action and the ratings history.
Moody's Investors Service did not receive or take into account a
third-party due diligence report on the underlying assets or financial
instruments related to the monitoring of this transaction in the past
six months.
DEAL PERFORMANCE
As of the December 17, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 29% to $932
million from $1.31 billion at securitization. The
Certificates are collateralized by 75 mortgage loans ranging in size from
less than 1% to 12% of the pool, with the top ten
loans representing 37% of the pool. Three loans, comprising
23% of the pool, have defeased and are collateralized by
U.S. Government securities. Defeasance at last review
represented 20% of the pool. The pool includes one loan
with an investment-grade credit estimate, representing 12%
of the pool.
Eleven loans, representing 10% of the pool, are on
the master servicer's watchlist. The watchlist includes loans which
meet certain portfolio review guidelines established as part of the CRE
Finance Council (CREFC) monthly reporting package. As part of our
ongoing monitoring of a transaction, Moody's reviews the watchlist
to assess which loans have material issues that could impact performance.
Seven loans have been liquidated from the pool since securitization,
resulting in an aggregate realized loss of $14.0 million
(44% loss severity on average). At last review the pool
had realized approximately $50,000 in realized losses.
Fifteen loans, representing 22% of the pool, are currently
in special servicing. The largest exposure in special servicing
is the Lembi Portfolio ($113.8 million -- 12%
of the pool), which consists of nine cross-collateralized
and cross-defaulted loans secured by 29 multifamily properties
located in San Francisco. The loans were transferred to special
servicing in May 2009 due to delinquency and are currently in foreclosure.
Of the remaining specially serviced loans, five are secured by retail
properties and one is secured by a multifamily property. The master
servicer has recognized appraisal reductions totaling $25.9
million for five of the specially serviced loans. Moody's
has estimated an aggregate $68.8 million loss for all loans
in special servicing.
Moody's has assumed a high default probability for eight poorly
performing loans, representing 9% of the pool, and
has estimated an aggregate $10.4 million loss (21%
expected loss based on a 64% probability of default) from these
troubled loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 73% and 87% of the pool, respectively.
Excluding the troubled loans, Moody's weighted average LTV
is 94%, compared to 89% at last review. Moody's
net cash flow reflects a weighted average haircut of 12.6%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.3%.
Excluding the troubled loans, Moody's actual and stressed
DSCRs are 1.35X and 1.10X, respectively, compared
to 1.63X and 1.35X at last review. Moody's
actual DSCR is based on Moody's net cash flow (NCF) and the loan's
actual debt service. Moody's stressed DSCR is based on Moody's
NCF and a 9.25% stressed rate applied to the loan balance.
The loan with a credit estimate is The Grace Building Loan ($111.7
million -- 12.0% of the pool), which is secured
by a 1.5 million square foot office building located in the Midtown
submarket of New York City. The loan represents a 33% pari-passu
interest in a $334.9 million loan. A $28.6
million B Note, which is held outside the trust, also encumbers
the property. The property is currently 100% leased compared
to 88% at last review. Brookfield Office Properties and
Swig Equities are the loan sponsors. Moody's current underlying
rating and stressed DSCR are Baa1 and 1.34X, respectively,
compared to Baa3 and 1.24X at last review.
The top three conduit loans represent 7% of the outstanding pool
balance. The largest loan is the North Haven Pavilion Loan ($24.6
million -- 2.6% of the pool), which is secured
by a 148,052 square foot shadow anchored retail center located in
North Haven, Connecticut. As of September 2010, the
center was 98% leased, the same as at last review and securitization.
Major tenants include Sports Authority (36% of the net rentable
area (NRA); lease expiration in October 2019) and Michael's
Stores (16% of the NRA; lease expiration in February 2014).
Moody's LTV and stressed DSCR are 104% and 0.99X,
respectively, compared to 111% and 0.88X at last review.
The second largest loan is the Parkridge Six Aurora Loan Services Loan
($22.7 million -- 2.4% of the pool),
which is secured by a 161,218 square foot office building located
in Littelton, a suburb of Denver, Colorado. The property
is 100% leased to Aurora Loan Services through July 2016.
Moody's LTV and stressed DSCR are 99% and 1.03X,
respectively, compared to 110% and 0.93X at last review.
The third largest loan is the Rosemead Place Loan ($21.1
million -- 2.3% of the pool), which is secured
by a 340,583 square foot anchored retail property located in the
San Gabriel Valley section of Los Angeles County. Major tenants
include Target (40% of the NRA; lease expiration in November
2037) and Bally's Total Fitness (13% of the NRA; lease
expiration in February 2016). As of September 2010, the property
was 88% leased compared to 95% at last review. Moody's
LTV and stressed DSCR are 84% and 1.15X, respectively,
compared to 87% and 1.13X at last review.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Keith Banhazl
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms 13 and Downgrades Seven CMBS Classes of LB-UBS 2004-C8
