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Rating Action:

Moody's Affirms Eight and Downgrades Six Classes of BACM 2008-LS1

25 Nov 2014

Approximately $1.7 Billion of Structured Securities Affected

New York, November 25, 2014 -- Moody's Investors Service has affirmed the ratings on eight classes and downgraded the ratings on six classes of Banc of America Commercial Mortgage Inc., Commercial Mortgage Pass-Through Certificates, Series 2008-LS1 as follows:

Cl. A-1A, Affirmed Aa1 (sf); previously on Jan 10, 2014 Affirmed Aa1 (sf)

Cl. A-4B, Affirmed Aa1 (sf); previously on Jan 10, 2014 Affirmed Aa1 (sf)

Cl. A-4BF, Affirmed Aa1 (sf); previously on Jan 10, 2014 Affirmed Aa1 (sf)

Cl. A-SM, Downgraded to A2 (sf); previously on Jan 10, 2014 Affirmed Aa3 (sf)

Cl. A-M, Downgraded to B2 (sf); previously on Jan 10, 2014 Downgraded to Ba3 (sf)

Cl. A-J, Downgraded to Caa3 (sf); previously on Jan 10, 2014 Downgraded to Caa1 (sf)

Cl. B, Downgraded to Ca (sf); previously on Jan 10, 2014 Affirmed Caa2 (sf)

Cl. C, Downgraded to C (sf); previously on Jan 10, 2014 Affirmed Caa3 (sf)

Cl. D, Affirmed C (sf); previously on Jan 10, 2014 Affirmed C (sf)

Cl. E, Affirmed C (sf); previously on Jan 10, 2014 Affirmed C (sf)

Cl. F, Affirmed C (sf); previously on Jan 10, 2014 Affirmed C (sf)

Cl. G, Affirmed C (sf); previously on Jan 10, 2014 Affirmed C (sf)

Cl. H, Affirmed C (sf); previously on Jan 10, 2014 Affirmed C (sf)

Cl. XW, Downgraded to B2 (sf); previously on Jan 10, 2014 Downgraded to B1 (sf)

RATINGS RATIONALE

The ratings on classes A-1A, A-4B and A-4BF were affirmed because the transaction's key metrics, including Moody's loan-to-value (LTV) ratio, Moody's stressed debt service coverage ratio (DSCR) and the transaction's Herfindahl Index (Herf), are within acceptable ranges. The affirmations of five below investment grade P&I classes were affirmed because the ratings are consistent with Moody's expected loss.

The ratings on five P&I classes were downgraded due to higher anticipated losses from specially serviced and troubled loans.

The rating on the IO Class (Class XW) was downgraded due to a decline in the credit performance (or the weighted average rating factor) of its referenced classes.

Moody's rating action reflects a base expected loss of 18.9% of the current balance, compared to 12.7% at Moody's last review. Moody's base expected loss plus realized losses is now 21.8% of the original pooled balance, compared to 17.8% 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://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.

FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. Performance that falls outside the given range can indicate that the collateral's credit quality is stronger or weaker than Moody's had previously expected.

Factors that could lead to an upgrade of the ratings include a significant amount of loan paydowns or amortization, an increase in the pool's share of defeasance or an improvement in pool performance.

Factors that could lead to a downgrade of the ratings include a decline in the performance of the pool, loan concentration, an increase in realized and expected losses from specially serviced and troubled loans or interest shortfalls.

METHODOLOGY UNDERLYING THE RATING ACTION

The principal methodology used in this rating was "Moody's Approach to Rating U.S. CMBS Conduit Transactions" published in September 2000. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

On October 9, 2014, Moody's issued a "Request for Comment" asking for market feedback on proposed changes to the methodology it uses to rate conduit and fusion CMBS transactions. If Moody's adopts the new methodology as proposed, the changes could affect the ratings of BACM 2008-LS1. Please see "Request for Comment: Proposed Enhancements to Our Approach to Rating US and Canadian Conduit/Fusion CMBS", which is available at www.moodys.com, for more information about the implications of the proposed changes to the methodology on Moody's ratings.

DESCRIPTION OF MODELS USED

Moody's review used the excel-based CMBS Conduit Model v 2.64, which it uses 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 Moody's uses to estimate Moody's value). Conduit model results at the B2 (sf) level are based on a paydown analysis using the individual loan-level Moody's LTV ratio. Moody's may consider other concentrations and correlations in its analysis. Based on the model pooled credit enhancement levels of Aa2 (sf) and B2 (sf), the required credit enhancement on 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, Moody's merges the credit enhancement for loans with investment-grade structured credit assessments with the conduit model credit enhancement for an overall model result. Moody's incorporates negative pooling (adding credit enhancement at the structured credit assessment level) for loans with similar structured credit assessments in the same transaction.

Moody's uses a variation of Herf to measure the diversity of loan sizes, where a higher number represents greater diversity. Loan concentration has an important bearing on potential rating volatility, including the risk of multiple notch downgrades under adverse circumstances. The credit neutral Herf score is 40. The pool has a Herf of 55, compared to 49 at Moody's last review.

DEAL PERFORMANCE

As of the November 10, 2014 distribution date, the transaction's aggregate certificate balance has decreased by 27% to $1.71 billion from $2.35 billion at securitization. The certificates are collateralized by 195 mortgage loans ranging in size from less than 1% to 9% of the pool, with the top ten loans constituting 31% of the pool. Two loans, constituting less than 0.5% of the pool, have defeased and are secured by US government securities.

Forty-four loans, constituting 18% of the pool, are on the master servicer's watchlist. The watchlist includes loans that meet certain portfolio review guidelines established as part of the CRE Finance Council (CREFC) monthly reporting package. As part of Moody's ongoing monitoring of a transaction, the agency reviews the watchlist to assess which loans have material issues that could affect performance.

Forty-three loans have been liquidated from the pool, resulting in an aggregate realized loss of $188 million (for an average loss severity of 50%). Twenty-nine loans, constituting 28% of the pool, are currently in special servicing. The largest specially serviced loan is the COPT Office Portfolio Loan ($150 million -- 8.8% of the pool), which is secured by two office buildings for a total of 694,000 SF in the Westfields Corporate Center in Chantilly, Virginia. The loan transferred to special servicing in May 2014 due to imminent default after the largest tenant (CSC Information Systems) significantly reduced their space, and the second largest tenant (Northtrop Gunman) exercised an early termination option. The portfolio was 43% leased as of May 2014 compared to 96% in June 2013. The special servicer indicated negotiations with the borrower will be dual tracked with foreclosure.

The second largest specially serviced loan is the Boulder Green Office and Industrial Portfolio Loan ($42.3 million -- 2.5% of the pool), which is currently secured by three office properties totaling 302,000 SF. The loan was transferred to special servicing in May 2012 for maturity default and became REO in September 2012. The loan was originally secured by six properties, one of which was released and the other two were sold after becoming REO. The collateral was appraised for $16.95 million in May 2014.

The third largest exposure in specially servicing is the Orlando Industrial and Memphis Industrial Portfolio Loans (a combined $41.5 million -- 2.4% of the pool). The Orlando Industrial Portfolio is secured by three industrial buildings in Orlando, Florida (the "Orlando Properties") and was cross-collateralized and cross-defaulted with the Memphis Industrial Portfolio Loan which was secured by three industrial properties located in Memphis, Tennessee (the "Memphis Properties"). The Memphis Properties were sold in 2012 and the proceeds were used to paydown the combined loan balance. The two loans transferred to special servicing in February 2010 due to imminent default and subsequently became REO.

The remaining 25 specially serviced loans are secured by a mix of property types. Moody's estimates an aggregate $266 million loss for the specially serviced loans (56% expected loss on average).

Moody's has assumed a high default probability for 22 poorly performing loans, constituting 8% of the pool, and has estimated an aggregate loss of $21 million (a 16% expected loss based on a 50% probability default) from these troubled loans.

Moody's received full year 2013 operating results for 96% of the pool, and partial year 2014 operating results for 52%. Moody's weighted average conduit LTV is 101%, compared to 98% at Moody's last review. Moody's conduit component excludes loans with structured credit assessments, defeased loans, and specially serviced and troubled loans. Moody's net cash flow (NCF) reflects a weighted average haircut of 13% to the most recently available net operating income (NOI). Moody's value reflects a weighted average capitalization rate of 9.3%.

Moody's actual and stressed conduit DSCRs are 1.31X and 1.07X, respectively, compared to 1.35X and 1.06X at the last review. Moody's actual DSCR is based on Moody's NCF and the loan's actual debt service. Moody's stressed DSCR is based on Moody's NCF and a 9.25% stress rate the agency applied to the loan balance.

As of the November 2014 remittance statement, interest shortfalls currently affect the A-J class and the deal has cumulative interest shortfalls of $27.5 million. Due to the specially serviced and modified loans Moody's expects interest shortfalls to continue. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal entitlement reductions (ASERs), loan modifications and extraordinary trust expenses.

The top three conduit loans represent 9% of the pool balance. The largest conduit loan is the Hallmark Building Loan ($64.0 million -- 3.7% of the pool), which is secured by a 305,000 SF Class A office building located in Dulles, Virginia. The subject is located adjacent to Washington Dulles International Airport and is attached to the Dulles Hilton Hotel (not part of the collateral). The property was 88% leased as of August 2014 compared to 99% in June 2013. The loan has consistently been on the watchlist since 2009 due to low DSCR. Moody's LTV and stressed DSCR are 166% and 0.62X, respectively, compared to 156% and 0.66X at last review.

The second largest loan is the Two Liberty Center Loan ($52.0 million -- 3.0% of the pool), which is secured by a 177,000 SF Class A office building in Arlington, Virginia. The property was 100% leased as of September 2014. The two largest tenants combine for approximately 84% of the net rentable area (NRA) and include BAE Systems (58% of the NRA; lease expiration January 2018) and Strategic Analysis (26% of the NRA; lease expiration December 2017). Moody's LTV and stressed DSCR are 103% and 0.94X, respectively.

The third largest loan is the 255 Rockville Pike Loan ($40.0 million -- 2.3% of the pool), which is secured by 145,500 SF office building in Rockville, Maryland. As of June 2014, the property was 100% leased. Montgomery County leases approximately 99% of the subject through September 2022. Due to the tenant concentration at this property, Moody's incorporated a "lit/dark" analysis. Moody's LTV and stressed DSCR are 126% and 0.77X, respectively, compared to 124% and 0.78X at the last review.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

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.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's did not use any stress scenario simulations in its analysis.

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.

Matthew Halpern
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

Keith Banhazl
Senior Vice President
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 Six Classes of BACM 2008-LS1
No Related Data.
© 2022 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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