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Rating Action:

Moody's Affirms Eight and Downgrades One CMBS Class of LB UBS 2003-C7

Global Credit Research - 19 Sep 2013

Approximately $57.6 million of Structured Securities Affected

New York, September 19, 2013 -- Moody's Investors Service (Moody's) affirmed the ratings of eight classes and downgraded one class of LB-UBS Commercial Mortgage Trust Commercial Mortgage Pass-Through Certificates, Series 2003-C7 as follows:

Cl. J, Affirmed Baa2 (sf); previously on Oct 15, 2003 Definitive Rating Assigned Baa2 (sf)

Cl. K, Affirmed Ba1 (sf); previously on Jun 18, 2009 Downgraded to Ba1 (sf)

Cl. L, Affirmed B1 (sf); previously on Sep 27, 2012 Downgraded to B1 (sf)

Cl. M, Affirmed B2 (sf); previously on Sep 27, 2012 Downgraded to B2 (sf)

Cl. N, Affirmed B3 (sf); previously on Sep 27, 2012 Downgraded to B3 (sf)

Cl. P, Affirmed Caa2 (sf); previously on Sep 27, 2012 Downgraded to Caa2 (sf)

Cl. Q, Affirmed C (sf); previously on Sep 27, 2012 Downgraded to C (sf)

Cl. S, Affirmed C (sf); previously on Dec 9, 2010 Downgraded to C (sf)

Cl. X-CL, Downgraded to Caa1 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

RATINGS RATIONALE

The affirmations of Classes J and K 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 Classes L, M, N, P, Q and S are consistent with Moody's expected loss and thus are affirmed. The rating for the Moody's rated IO class, Class X-CL is downgraded due to a decline in the weighted average rating factor (WARF) of its referenced classes.

Based on our current base expected loss, the credit enhancement levels for the affirmed classes are sufficient to maintain its current rating. 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.

Moody's rating action reflects a base expected loss of 31.9% of the current pooled balance compared to 5.1% at last review. Moody's base expected loss plus cumulative realized losses is now 1.8% of the original pool balance, compared to 2.5% at the last review. Moody's provides a current list of base expected 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 U.S. CMBS Conduit Transactions" published in September 2000 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 2.63 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 3 compared to 7 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 8.6 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 September 27, 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 September 17, 2013 distribution date, the transaction's aggregate pooled certificate balance has decreased by 95% to $78.7 million from $1.45 billion at securitization. The deal has paid down 89% since last review. The Certificates are collateralized by eight mortgage loans ranging in size from less than 1% to 39% of the pool. One loan, representing approximately 3% of the pool is defeased and is collateralized by U.S. Government securities.

One loan, representing 38% of the pool, is 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.

Two loans have liquidated from the pool, resulting in an aggregate realized loss of $603,600 (18% average loan loss severity). Currently, five loans, representing 56% of the pool, are in special servicing. The largest specially serviced loan is the Shepherd Office Center Loan ($30.7 million -- 39.1% of the pool), which is secured by a 637,500 square foot (SF) former regional mall which was converted into an office property in downtown Oklahoma City, Oklahoma. The property was 91% leased as of July 2013 compared to 80% at Moody's last review. The loan transferred to special servicing in September 2010 due to imminent monetary default. The Lender entered into a Forbearance Agreement with the Borrower wherein Lender will receive no less than $30.7 million prior to September 30, 2013. The Borrower has expressed that it will be unable to perform on or before that date and the Lender has agreed to extend the timing of this matter to December 31, 2013 pending the receipt of $5.0 million from Borrower and Guarantors on or before September 30, 2013. Should the Borrower fail to perform, the Lender will move to complete foreclosure as soon as practicable.

The second largest specially serviced loan is the Grand Pavilion loan ($5.9 million -- 7.6% of the pool). The loan is secured by a 62,500 SF retail property located in Atlanta, Georgia. The loan transferred to special servicing for monetary default in September 2010. The lender foreclosed on the property on October 14, 2011. As of July 2013, property was 26% leased.

The third largest specially serviced loan is the Fletcher Heights Marketplace Loan ($4.6 million -- 5.9% of the pool), which is secured by a 26,000 SF retail property located in Peoria, Arizona. The loan was transferred to special servicing in January 2012 due to monetary default as a result of tenancy delinquency and vacancy. The lender foreclosed on the property on November 19, 2012. As of July 2013, the property was 61% occupied.

The remaining two specially serviced loans are secured by retail properties. Moody's estimates an aggregate $17.9 million (41% loss on average) loss for all specially serviced loans.

Moody's was provided with full-year 2012 and partial year 2013 operating results for 100% and 96% of the performing pool, respectively. Excluding specially serviced loans, Moody's weighted average conduit LTV is 128% compared to 89% at last full review. Moody's net cash flow reflects a weighted average haircut of 2.2% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.5%.

Excluding specially serviced loans, Moody's actual and stressed conduit DSCRs are 0.91X and 0.84X, respectively, compared to 1.32X and 1.18X 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.

There are two loans remaining in the conduit pool representing 41% of the deal. The largest loan is the Shops at Gainey Village Loan ($29.7 million -- 37.9% of the pool). The loan is secured by a 138,3000 SF retail center located in Scottsdale, Arizona. The tenancy consists primarily of local and regional boutique retailers. The loan was 79% leased as of April 2013 compared to 74% at last review. The loan was modified in June 2011 to extend the loan maturity to December 2013. The loan sponsor is an affiliate of Principal Global Investors. The loan is currently on the watchlist due to it's upcoming maturity. The borrower has indicated to the Master Servicer that it is refinancing the loan and plans to close with new lender on or around September 30, 2013. Moody's current LTV and stressed DSCR are 133% and 0.77X, respectively, compared to 166% and 0.62X at last review.

The second conduit loan is the Cabarrus Family Medicine Medical Office Building ($2.2 million -- 2.8% of the pool), which secured by a 23,555 SF office property located in Harrisburg, a northeastern suburb of Charlotte, North Carolina. As of December 2012, the property was 81% occupied compared to 100% at last review. The property is occupied by two tenants, Cabarrus Family Medicine (60% of the net rentable area (NRA); lease expiration February 2016) and Copperfield OB/GYN (30% of the NRA; lease expiration October 2017). Moody's current LTV and stressed DSCR are 60% and 1.72X, respectively, compared to 53% and 1.94X 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.

Lacey M Morgan
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 and Downgrades One CMBS Class of LB UBS 2003-C7
No Related Data.

 

© 2014 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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