Approximately $772.3 Million of Structured Securities Affected
New York, November 10, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 18 classes
of LB-UBS Commercial Mortgage Trust 2004-C2, Commercial
Mortgage Pass-Through Certificates, Series 2004-C2
as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Mar 13,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aa1 (sf); previously on Mar 13,
2007 Upgraded to Aa1 (sf)
Cl. D, Affirmed at Aa3 (sf); previously on Dec 17,
2010 Downgraded to Aa3 (sf)
Cl. E, Affirmed at A2 (sf); previously on Dec 17,
2010 Downgraded to A2 (sf)
Cl. F, Affirmed at Baa1 (sf); previously on Dec 17,
2010 Downgraded to Baa1 (sf)
Cl. G, Affirmed at Ba2 (sf); previously on Dec 17,
2010 Downgraded to Ba2 (sf)
Cl. H, Affirmed at B1 (sf); previously on Dec 17,
2010 Downgraded to B1 (sf)
Cl. J, Affirmed at B3 (sf); previously on Dec 17,
2010 Downgraded to B3 (sf)
Cl. K, Affirmed at Caa3 (sf); previously on Dec 17,
2010 Downgraded to Caa3 (sf)
Cl. L, Affirmed at Ca (sf); previously on Dec 17,
2010 Downgraded to Ca (sf)
Cl. M, Affirmed at C (sf); previously on Dec 17,
2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Dec 17,
2010 Downgraded to C (sf)
Cl. P, Affirmed at C (sf); previously on Dec 17,
2010 Downgraded to C (sf)
Cl. Q, Affirmed at C (sf); previously on Dec 17,
2010 Downgraded to C (sf)
Cl. S, Affirmed at C (sf); previously on Dec 17,
2010 Downgraded to C (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
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.
Moody's rating action reflects a cumulative base expected loss of
3.6% of the current balance. At last review,
Moody's cumulative base expected loss was 3.4%.
Moody's stressed scenario loss is 6.5% of the current
balance. 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.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics. Primary sources
of assumption uncertainty are the current sluggish macroeconomic environment
and performance in the commercial real estate property markets.
While commercial real estate property markets are gaining momentum,
a consistent upward trend will not be evident until the volume of transactions
increases, distressed properties are cleared from the pipeline and
job creation rebounds. The hotel and multifamily sectors are continuing
to show signs of recovery through the first half of 2011, while
recovery in the non-core office and retail sectors are tied to
pace of recovery of the broader economy. Core office markets are
showing signs of recovery through lending and leasing activity.
The availability of debt capital continues to improve with terms returning
toward market norms. Moody's central global macroeconomic scenario
reflects an overall sluggish recovery as the most likely scenario through
2012, amidst ongoing individual, corporate and governmental
deleveraging, persistent unemployment, and government budget
considerations, however the downside risks to the outlook have risen
since last quarter.
The methodologies used in this rating were "Moody's Approach
to Rating Fusion U.S. CMBS Transactions" published
in April 2005, and "Moody's Approach to Rating CMBS
Large Loan/Single Borrower Transactions" published in July 2000.
Please see the Credit Policy page on www.moodys.com for
a copy of these methodologies.
Moody's review incorporated the use of the excel-based CMBS
Conduit Model v 2.60 which is used for both conduit and fusion
transactions. Conduit model results at the Aa2 (sf) 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 (sf) 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 (sf) and B2 (sf), 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 underlying rating 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 underlying rating 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 10
compared to 13 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 8.2 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 December 17, 2010.
Please see the ratings tab on the issuer / entity page on moodys.com
for the last rating action and the ratings history.
DEAL PERFORMANCE
As of the October 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 37% to $772.3
million from $1.2 billion at securitization. The
Certificates are collateralized by 66 mortgage loans ranging in size from
less than 1% to 19% of the pool, with the top ten
loans representing 70% of the pool. The pool contains four
loans with investment grade credit estimates that represent 45%
of the pool. Ten loans, representing 8% of the pool,
have defeased and are collateralized with U.S. Government
securities.
Sixteen loans, representing 8% 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.
Five loans have been liquidated from the pool, resulting in an aggregate
realized loss of $10.3 million (11% loss severity
overall). Of the liquidated loans, two loans (with a loss
severity greater than 1%) have an overall loss severity of 82%.
Nine loans, representing 6% of the pool, are currently
in special servicing. The master servicer has recognized an aggregate
$14.0 million appraisal reduction for six of the specially
serviced loans. Moody's has estimated an aggregate $16.9
million loss (38% expected loss on average) for the specially serviced
loans.
Moody's has assumed a high default probability for nine poorly performing
loans representing 4% of the pool and has estimated a $4.3
million aggregate loss (15% expected loss based on a 50%
probability default) from these troubled loans.
Moody's was provided with partial and full year 2010 and partial
year 2011 operating results for 78% and 32% of the pool's
non-defeased and non-specially serviced loans, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 81% compared to 82% at Moody's prior
review. Moody's net cash flow reflects a weighted average
haircut of 14% to the most recently available net operating income.
Moody's value reflects a weighted average capitalization rate of
9.3%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.51X and 1.29X, respectively,
compared to 1.66X and 1.28X 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 largest loan with a credit estimate is the GIC Office Portfolio Loan
($144.9 million -- 18.8% of
the pool), which is a pari-passu interest in a $676.1
million first mortgage loan. The loan is secured by a portfolio
of 12 office properties located in seven states and totaling 6.4
million square feet (SF). The largest geographic concentrations
are Illinois (39%), Pennsylvania (17%) and California
(12%). The portfolio was 87% leased as of December
2010 compared to 90% as of December 2009. Property performance
has declined due to decreased rental income. The portfolio is also
encumbered by a $120.7 million B Note. The loan had
a 60-month interest only period and is amortizing on a 360-month
schedule maturing in January 2014. Moody's current credit estimate
and stressed DSCR are Baa3 and 1.44X, respectively,
compared to Baa3 and 1.45X at Moody's last review.
The second loan with a credit estimate is the Somerset Collection Loan
($125.5 million -- 16.3% of
the pool), which is a pari-passu interest in a $251.0
million first mortgage loan. The loan is secured by a 1.4
million SF regional mall located in Troy, Michigan. The center
is the dominant mall in its trade area and is anchored by Macy's,
Nordstrom, Saks Fifth Avenue and Neiman Marcus. The mall
was 99% leased as of July 2011 compared to 97% at last review.
The property is also encumbered by a B-Note which is held outside
the trust. The loan is interest only for its entire 10-year
term. Property performance is stable. Moody's credit estimate
and stressed DSCR are A1 and 1.52X, respectively, compared
to A1 and 1.51X at last review.
The third loan with a credit estimate is the Ruppert Yorkville Towers
Loan ($39.4 million -- 5.1%
of the pool), which is secured by 825-unit multifamily high-rise
complex located on the Upper East Side of Manhattan. The complex
was completed in 1975 and converted to a condominium structure in 2003.
The collateral for the loan includes 432 unsold residential units,
unsold storage units and 53,810 SF of commercial space. The
unsold units are either vacant, occupied by market rate tenants
or occupied by pre-conversion tenants at below market rental rates.
Moody's credit estimate is Aaa, the same as at last review.
The fourth loan with a credit estimate is the Farmers Market Loan ($39.4
million -- 5.1% of the pool), which
is secured by a 228,339 SF mixed-use retail and office property
built in 1940 (renovated in 2002) located in Los Angeles, California.
The property was 98% leased as of June 2011, the same as
at last review. Property performance has improved due to a decline
in operating expenses. Moody's credit estimate and stressed DSCR
are Aa3 and 1.93X, respectively, compared to Aa3 and
1.83X at last review.
The top three performing conduit loans represent 19% of the pool
balance. The largest loan is the Maritime Plaza I and II Loan ($68.5
million -- 8.9% of the pool), which
is secured by two office buildings (totaling 345,736 SF) located
in the Capitol Hill submarket of Washington, D.C.
The property was 95% leased as of March 2011 compared to 100%
at last review. The largest tenant is Computer Sciences Corporation
(37% of the NRA; lease expirations in 2013 and 2014).
Performance is stable. Moody's LTV and stressed DSCR are 74%
and 1.31X, respectively, compared to 75% and
1.31X at the last review.
The second largest loan is the 280 Metro Center Loan ($42.3
million -- 5.5% of the pool), which
is secured by a 213,757 SF anchored retail center located in Colma,
California (approximately 10 miles south of San Francisco). The
center is anchored by Marshalls and Nordstrom rack and shadow-anchored
by Home Depot, Best Buy and Joann's Fabrics. The property
was 98% leased as of July 2011 compared to 99% at last review.
Performance has improved due to a decline in operating expenses.
Moody's LTV and stressed DSCR are 82% and 1.19X, respectively,
compared to 85% and 1.15X at last review.
The third largest loan is the Torrance Town Center Loan ($32.5
million -- 4.2% of the pool), which
is secured by a 259,476 SF anchored retail center located in Torrance,
California. The center is anchored by Kohl's (37%
of the NRA; lease expiration in January 2024). As of October
2011, the center was 100% leased compared to 99% at
last review. Moody's LTV and stressed DSCR are 79%
and 1.26X, respectively, compared to 82% and
1.22X at last review.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are considered EU Qualified
by Extension and therefore available for regulatory use in the EU.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
a rating.
Moody's adopts all necessary measures so that the information it
uses in assigning a 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 Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's 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 www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Raymond Flores
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael M. Gerdes
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Affirms 18 CMBS Classes of LB-UBS 2004-C2
