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Rating Action:

Moody's Affirms Eight, Upgrades Three and Downgrades Two CMBS Classes of LB-UBS 2004-C2

12 Sep 2013

Approximately $401.2 Million of Structured Securities Affected

New York, September 12, 2013 -- Moody's Investors Service affirmed the ratings of eight classes, upgraded three classes and downgraded two classes of LB-UBS Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2004-C2 as follows:

Cl. A-4, Affirmed Aaa (sf); previously on Sep 28, 2004 Definitive Rating Assigned Aaa (sf)

Cl. B, Affirmed Aaa (sf); previously on Mar 13, 2007 Upgraded to Aaa (sf)

Cl. C, Upgraded to Aaa (sf); previously on Mar 13, 2007 Upgraded to Aa1 (sf)

Cl. D, Upgraded to Aa2 (sf); previously on Dec 17, 2010 Downgraded to Aa3 (sf)

Cl. E, Upgraded to A1 (sf); previously on Dec 17, 2010 Downgraded to A2 (sf)

Cl. F, Affirmed Baa1 (sf); previously on Dec 17, 2010 Downgraded to Baa1 (sf)

Cl. G, Affirmed Ba2 (sf); previously on Dec 17, 2010 Downgraded to Ba2 (sf)

Cl. H, Affirmed B1 (sf); previously on Dec 17, 2010 Downgraded to B1 (sf)

Cl. J, Downgraded to Caa2 (sf); previously on Oct 18, 2012 Downgraded to Caa1 (sf)

Cl. K, Downgraded to C (sf); previously on Oct 18, 2012 Downgraded to Ca (sf)

Cl. L, Affirmed C (sf); previously on Oct 18, 2012 Downgraded to C (sf)

Cl. M, Affirmed C (sf); previously on Dec 17, 2010 Downgraded to C (sf)

Cl. X-CL, Affirmed Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

RATINGS RATIONALE

The affirmation of the three investment grade P&I classes 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. The ratings of the four below-investment grade P&I classes are consistent with Moody's expected loss and thus affirmed. The rating of the IO Class, Class X-CL, is affirmed due to the weighted average rating factor (WARF) being consistent with the ratings of its referenced classes.

Based on our current base expected loss, the credit enhancement level for the affirmed class is sufficient to maintain their current ratings. Depending on the timing of loan payoffs and the severity and timing of losses from specially serviced loans, the credit enhancement level for rated 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 upgrades of three P&I classes are due to increased credit support due to amortization and payoffs as well as anticipated paydowns from defeased loans and other loans approaching maturity that are well positioned for refinance. The pool has paid down by 47% since Moody's last review. There are 12 defeased loans representing $84.5 million coming due within the next six months.

The downgrades of the two below investment grade P&I classes are due to an increase in Moody's expected loss resulting from specially serviced and troubled loans.

Moody's rating action reflects a base expected loss of 6.8% of the current balance, compared to 4.3% at last review. Moody's base expected loss plus realized loss is now 4.4% compared to 4.3% at last review. Moody's provides a current list of base losses for conduit and fusion CMBS transactions on moodys.com at http://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.

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.

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 2.62 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 assessments is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the credit assessment 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 assessment level, is incorporated for loans with similar credit assessments 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 11 compared to 10 at last 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 8.5 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 a review utilizing MOST® (Moody's Surveillance Trends) Reports and a proprietary program that highlights significant credit changes that have occurred in the last month as well as cumulative changes since the last full transaction review. On a periodic basis, Moody's also performs a full transaction review that involves a rating committee and a press release. Moody's prior transaction review is summarized in a press release dated October 18, 2012. 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 August 16, 2013 distribution date, the transaction's aggregate certificate balance has decreased by 68% to $401.2 million from $1.2 billion at securitization. The Certificates are collateralized by 56 mortgage loans ranging in size from less than 1% to 16% of the pool. Thirteen loans representing 24% of the pool have defeased and are secured by U.S. Government securities. The pool contains two loans with credit assessments, representing 19% of the pool.

Five loans, representing 3% 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.

Nine loans have been liquidated from the pool, resulting in an aggregate realized loss of $26.5 million (28% loss severity). Currently eight loans, representing 9% of the pool, are in special servicing. The largest specially serviced loan is the Plaza Vista Mall Loan ($11.7 million -- 3% of the pool). This loan is secured by a 227,149 square foot (SF) retail center located in Sierra Vista, Arizona. The property is currently undergoing a lease up strategy and has an expected to be marketed for sale in late 2015. As of July 2013, the property was 40% leased, in line with last review. Hobby Lobby and C-A-L Ranch stores have both signed leases starting in January 2014 with a total of 127,247 SF which would bring the occupancy up to 96% leased. The lease up of this space will also end the concessions that were triggered by co-tenancy clauses from Walmart vacating the property in 2010.

The second largest specially serviced loan is the Warm Springs Loan ($9.6 million -- 2% of the pool). This loan is secured by an office property located just south of McCarren airport in Las Vegas, Nevada. This loan transferred to special servicing in September 2012 due to GSA vacating, leaving the property 46% leased. The special servicer is pursuing foreclosure.

The remaining specially serviced loans are represented by a mix of property types. Moody's has estimated an aggregate $20.9 million loss (60% expected loss on average) for the specially serviced loans.

Moody's has assumed a high default probability for three poorly performing loans representing 2% of the pool and has estimated an aggregate $1.5 million loss (15% expected loss based on a 50% probability default) from these troubled loans.

Moody's was provided with full year 2012 operating results for 100% of the pool's non-specially serviced and non-defeased loans. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 81% compared to 78% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 13% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.4%.

Excluding special serviced and troubled loans, Moody's actual and stressed DSCRs are 1.53X and 1.34X, respectively, compared to 1.56X and 1.36X 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 assessment is the Ruppert Yorkville Towers Loan ($37.8 million -- 9% 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. A portion of the unsold units are occupied by pre-conversion tenants at below market rental rates. As of December 2012, the property was 93% leased. Moody's credit assessment and stressed DSCR are Aaa and 2.05 X, respectively, compared to Aaa and 1.76X at last review.

The second loan with a credit assessment is the Farmers Market Loan ($37.7 million -- 9% of the pool), which is secured by a 228,339 SF mixed-use retail and office property originally built in 1940 (renovated in 2002) located in Los Angeles, California. The property was 99% leased as of December 2012, the same as the last two reviews. Property performance has improved due to an increase base and percentage rents as well as expense reimbursements. The loan benefits from amortization and matures in March 2014. Moody's credit assessment and stressed DSCR are Aa1 and 2.72X, respectively, compared to Aa2 and 2.27X at last review.

The top three performing conduit loans represent 25% of the pool balance. The largest loan is the Maritime Plaza I and II Loan ($65.8 million -- 16.4% of the pool), which is secured by two office buildings (totaling 351,452 SF) located in the Capitol Hill submarket of Washington, D.C. The properties were 89% leased as of December 2012 compared to 93% at last review. The largest tenant is Computer Sciences Corporation (45% of the NRA; lease expirations in October 2013 and November 2014). The loan benefits from amortization and matures in March 2014. Moody's LTV and stressed DSCR are 84% and 1.16X, respectively, compared to 73% and 1.33X at the last review.

The second largest loan is the Voice Road Shopping Center ($21.1 million -- 5% of the pool), which is secured by a 131,452 SF retail property located in Carle Place, New York. The property was 83% leased as of July 2013. Moody's LTV and stressed DSCR are 104% and 1.01X, respectively, compared to 117% and 0.90X at last review.

The third largest loan is the Woodland Meadows Loan ($13.1million -- 3% of the pool), which is secured by a 248-unit multifamily property located in Spring, Texas. The property was 98% leased as of June 2013. Moody's LTV and stressed DSCR are 67% and 1.36X, respectively, compared to 76% and 1.21X at last review.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dana Baranaskas
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 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 Eight, Upgrades Three and Downgrades Two CMBS Classes of LB-UBS 2004-C2
No Related Data.
© 2021 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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