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Announcement:

Moody's Affirms 23 CMBS Classes of LB-UBS 2004-C7

Global Credit Research - 22 Apr 2011

Approximately $935.4 Million of Structured Securities Affected

New York, April 22, 2011 -- Moody's Investors Service (Moody's) affirmed the ratings of 23 classes of LB-UBS Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2004-C7 as follows:

Cl. A-3, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-5, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-6, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. X-CL, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. X-CP, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. X-OL, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-1A, Affirmed at Aaa (sf); previously on Nov 9, 2004 Definitive Rating Assigned Aaa (sf)

Cl. B, Affirmed at Aa1 (sf); previously on Jul 14, 2010 Confirmed at Aa1 (sf)

Cl. C, Affirmed at Aa2 (sf); previously on Jul 14, 2010 Confirmed at Aa2 (sf)

Cl. D, Affirmed at A1 (sf); previously on Jul 14, 2010 Downgraded to A1 (sf)

Cl. E, Affirmed at A3 (sf); previously on Jul 14, 2010 Downgraded to A3 (sf)

Cl. F, Affirmed at Baa2 (sf); previously on Jul 14, 2010 Downgraded to Baa2 (sf)

Cl. G, Affirmed at Ba1 (sf); previously on Jul 14, 2010 Downgraded to Ba1 (sf)

Cl. H, Affirmed at Ba2 (sf); previously on Jul 14, 2010 Downgraded to Ba2 (sf)

Cl. J, Affirmed at B2 (sf); previously on Jul 14, 2010 Downgraded to B2 (sf)

Cl. K, Affirmed at Caa2 (sf); previously on Jul 14, 2010 Downgraded to Caa2 (sf)

Cl. L, Affirmed at Caa3 (sf); previously on Jul 14, 2010 Downgraded to Caa3 (sf)

Cl. M, Affirmed at Ca (sf); previously on Jul 14, 2010 Downgraded to Ca (sf)

Cl. N, Affirmed at C (sf); previously on Jul 14, 2010 Downgraded to C (sf)

Cl. P, Affirmed at C (sf); previously on Jul 14, 2010 Downgraded to C (sf)

Cl. Q, Affirmed at C (sf); previously on Jul 14, 2010 Downgraded to C (sf)

Cl. S, Affirmed at C (sf); previously on Jul 14, 2010 Downgraded to C (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 3.9% of the current balance. At last review, Moody's cumulative base expected loss was 4.2%. Moody's stressed scenario loss is 10.6% 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.

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 sluggish macroeconomic environment and varying performance in the commercial real estate property markets. However, Moody's expects to see increasing or stabilizing property values, higher transaction volumes, a slowing in the pace of loan delinquencies and greater liquidity for commercial real estate in 2011. The hotel and multifamily sectors are continuing to show signs of recovery, while recovery in the office and retail sectors will be tied to recovery of the broader economy. 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 through 2012, amidst ongoing individual, corporate and governmental deleveraging, persistent unemployment, and government budget considerations.

The principal methodologies used were Moody's Approach to Rating Fusion Transactions" published in April 2005 and CMBS "Moody's Approach to Rating Large Loan/Single Borrower Transactions", published in September 2000. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

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 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 7 at Moody's prior full review. The increase in Herf is due to the improved performance of several loans that had been removed from the conduit pool at last review for very high leverage.

In cases where the Herf falls below 20, Moody's employs the large loan/single borrower methodology. This methodology uses the excel-based Large Loan Model v 8.0. 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 July 14, 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 April 15, 2011 distribution date, the transaction's aggregate certificate balance has decreased by 33% to $943.4 million from $1.42 billion at securitization. The Certificates are collateralized by 79 mortgage loans ranging in size from less than 1% to 18% of the pool, with the top ten loans representing 49% of the pool. The pool contains five loans with investment-grade credit estimates that represent 12% of the pool. At last review, there was a sixth loan with an credit estimate. However, due to a decline in performance and increased leverage, this loan is now analyzed as part of the conduit pool. Four loans, representing 21% of the pool, have defeased and are collateralized with U.S. Government securities.

Currently, there are 17 loans, representing 20% of the pool, 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.

To date, four loans have been liquidated from the pool, resulting in a $6.2 million aggregate loss (46% loss severity on average). Currently, there are seven loans in special servicing, representing 5% of the pool. The largest loan in special servicing is the North Dekalb Mall Loan ($26.5 million -- 3.9% of the pool), which is secured by a 628,700 square foot (SF) regional mall located in Decatur, Georgia. The mall is anchored by Macy's, Ross Dress for Less and AMC Theatres. As of June 2010, the property was 88% leased compared to 94% at last review. The loan was transferred to special servicing in September 2010 due to imminent monetary default when the Borrower requested a loan modification. The loan is current. The remaining six specially serviced loans are secured by a mix of property types. Moody's estimates a total loss of $13.2 million (a 35% loss severity on average) for five of the seven specially serviced loans.

Moody's has assumed a high default probability for four loans representing 1% of the pool. Moody's has estimated a $2.4 million aggregate loss (20% expected loss based on a 50% default probability) from these loans.

Moody's was provided with full year 2009 and partial year 2010 financials for 74% and 72% of the pool, respectively. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 99% compared to 96% 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 9.0%.

Excluding specialy serviced and troubled loans, Moody's actual and stressed DSCRs are 1.30X and 1.02X, respectively, compared to 1.36X and 1.05X 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 Montgomery Mall Loan ($85.5 million -- 9.1% of the pool), which is secured by a 1.1 million SF regional mall located in North Wales, Pennsylvania, approximately 20 miles northwest of Philadelphia. The collateral space is 559,000 SF. The mall is anchored by Macys, Sears and Dick's Sporting Goods. Comparable in-line sales for 2010 were $324 per square foot compared to $317 per SF at last review. Boscov's, a non-collateral anchor tenant at securitization, vacated its space in 2008 prior to its lease expiration in 2027 when it filed for bankruptcy. As of December 2010, the total property was 80% leased compared to 77% at last review; the collateral space was 85% leased compared to 82% at last review. Performance remains stable. The loan has amortized 2% since last review. Moody's current underlying rating and stressed DSCR are A3 and 1.39X, respectively, compared to A3 and 1.34X at last review.

The remaining four loans with credit estimates comprise 3% of the pool. The Kimco Portfolio - Enchanted Forest Loan ($11.0 million -- 1.2% of the pool) is secured by a grocery-anchored retail center located in Ellicott City, Maryland. The performance remains stable. Moody's credit estimate and stressed DSCR are Aa1 and 2.35X, the same as at last review. The Kimco Portfolio - Wilkens Beltway Plaza Loan ($8.2 million -- 0.9% of the pool) is secured by a grocery-anchored retail center located in Baltimore, Maryland. Performance has declined due to a drop in occupancy. The property is 82% leased compared to 92% at last review. Furthermore, leases for an additional 20% of the NRA expire in 2011. Moody's credit estimate and stressed DSCR are Aa2 and 2.15X, respectively, compared to Aa1 and 2.30X at last review. The Kimco Portfolio - Perry Hall Super Fresh Loan ($5.5 million -- 0.6% of the pool) is secured by a grocery-anchored retail center located in Perry Hall, Maryland. Performance remains stable. The loan has a credit estimate of Aa2 and stressed DSCR of 2.14X, the same as at last review. The Palmetto Place Apartments Loan ($4.9 million -- 0.5% of the pool), is secured by a garden style apartment complex located in Miami, Florida. Performance remains stable. The credit estimate is Aaa and stressed DSCR greater than 4.00X, the same as at last review.

The loan that previously had a credit estimate is the World Apparel Center Loan ($69.3 million -- 7.3% of the pool), which represents a 33% participation interest in a $210.1 million first mortgage loan. The whole loan is secured by a 1.1 million SF Class A office building located in the Times Square submarket of New York City. The building's largest tenants include Jones Apparel Group (50% of the net rentable area (NRA); lease expiration April 2012), Jacque Moret (7% of the NRA; lease expiration in June 2020) and Alfred Dunner & Co. (4% of the NRA; lease expiration January 2017). As of December 2010, the property was 93% leased compared 75% at last review. Despite the increase in occupancy, total income has declined for the fourth consecutive year. The loan is currently on the master servicer's watchlist for DSCR. The full year 2010 net operating income (NOI) is 34% lower than in 2007 due to lower rents and re-imbursements and higher operating expenses. There is significant rollover risk related to the Jones Apparel lease, which expires in 2012. Moody's LTV and stressed DSCR are 99% and 0.96X, respectively, compared to 70% and 1.36X at last review.

The three largest conduit loans represent 22% of the pool. The largest conduit loan is the 600 Third Avenue Loan ($168.0 million -- 17.8% of the pool),which is secured by a 541,000 SF Class A office building located in the Grand Central/UN office submarket of New York City. Major tenants L-3 Communications Corporation (15% of the NRA; lease expiration December 2018) and Sumitomo Corporation of America (10% of the NRA; lease expiration August 2014). As of January 2011, the property was 81% leased compared to 91% at last review. The rise in vacancy is due to Tru TV (Court TV) vacating 120,000 SF when its lease expired in December 2010. The Borrower was able re-lease some the vacant space when Aaronson Rappaport, Feinstein and Deutsch LLP, a defense litigation firm, signed a new lease for 44,000 SF starting in January 2011. Despite the high vacancy, Moody's anticipates that the property will stabilize. Borrower is proactively marketing and improving the property. Secondly, the building's in-place rents of $45.20 per square foot are below the sub-market asking rents of $53 per square foot reported by CB Richard Ellis. For the short term, it is anticipated that the cash flow will decline due to lower recoveries and higher one-time charges related to the tenant improvements and leasing commissions. Moody's LTV and stressed DSCR are 109% and 0.85X, respectively, compared to 106% and 0.85X at last review.

The second largest conduit loan is Guam Multifamily Loan ($20. 9 million -- 2.2% of the pool), which is secured by 12 multifamily properties and one retail center located in Yoga, Guam. The loan was placed on the master servicer's watchlist in April 2010 due to a decline in financial performance and concerns about deferred maintenance. The portfolio has a combined occupancy of 87%. Moody's LTV and stressed DSCR are 105% and 0.92X, respectively, compared to 109% and 0.89X at last review.

The third largest conduit loan is the Richard's of Greenwich Loan ($20.8 million -- 2.2% of the pool), which is secured by a 27,000 SF retail property located in Greenwich, Connecticut. The property is 100% leased to Ed Mitchell, Inc., a men's apparel company, through 2024. Performance remains stable. Moody's LTV and stressed DSCR are 105% and 0.90X, the same as at last review.

New York
Juan Acosta
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 23 CMBS Classes of LB-UBS 2004-C7
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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