Approximately $43.7 Billion of Structured Securities Affected
New York, February 29, 2012 -- Moody's Investors Service (Moody's) affirmed the ratings of three classes
of LB Commercial Mortgage Trust, Commercial Mortgage Pass-Through
Certificates, Series 1998-C1 as follows:
Cl. D, Affirmed at Aaa (sf); previously on Mar 9,
2011 Confirmed at Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Mar 9,
2011 Confirmed at Aaa (sf)
Cl. IO, Affirmed at B3 (sf); previously on Feb 22,
2012 Downgraded to B3 (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
2.1% of the current balance. At last review,
Moody's cumulative base expected loss was 14.4%.
Realized losses have increased from 1.7% of the original
balance to 2.8% since the prior 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.
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 extent of the slowdown
in growth in the current macroeconomic environment and commercial real
estate property markets. While commercial real estate property
values are beginning to move in a positive direction, a consistent
upward trend will not be evident until the volume of investment activity
increases, distressed properties are cleared from the pipeline,
and job creation rebounds. The hotel and multifamily sectors continue
to show positive signs and improvements in the office sector continue
with minimal additions to supply. However, office demand
is closely tied to employment, where unemployment remains above
long-term averages and business confidence remains below long-term
averages. Performance in the retail sector has been mixed with
lackluster holiday sales driven by sales and promotions. Consumer
confidence remains low. Across all property sectors, the
availability of debt capital continues to improve with increased securitization
activity of commercial real estate loans supported by a monetary policy
of low interest rates. Moody's central global macroeconomic scenario
reflects: an overall downward revision of real growth forecasts
since last quarter, amidst ongoing and policy-induced banking
sector deleveraging leading to a tightening of bank lending standards
and credit contraction; financial market turmoil continuing to negatively
impact consumer and business confidence; persistently high unemployment
levels; and weak housing markets resulting in a further slowdown
in growth.
The methodologies used in this rating were "Moody's Approach to
Rating U.S. CMBS Conduit Transactions" published in
September 2000, "Moody's Approach to Rating Structured Finance Interest-Only
Securities" published in February 2012, 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 credit estimate 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 estimate level, is incorporated
for loans with similar credit estimates in the same transaction.
Moody's review also incorporated the CMBS IO calculator ver 1.0,
which uses the following inputs to calculate the proposed IO rating based
on the published methodology: original and current bond ratings
and credit estimates; original and current bond balances grossed
up for losses for all bonds the IO(s) reference(s) within the transaction;
and IO type corresponding to an IO type as defined in the published methodology.
The calculator then returns a calculated IO rating based on both a target
and mid-point . For example, a target rating basis
for a Baa3 (sf) rating is a 610 rating factor. The midpoint rating
basis for a Baa3 (sf) rating is 775 (i.e. the simple average
of a Baa3 (sf) rating factor of 610 and a Ba1 (sf) rating factor of 940).
If the calculated IO rating factor is 700, the CMBS IO calculator
ver1.0 would provide both a Baa3 (sf) and Ba1 (sf) IO indication
for consideration by the rating committee.
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 15
compared to 17 at Moody's prior 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 March 10, 2011.
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 February 18, 2012 distribution date, the transaction's
aggregate certificate balance has decreased by 88% to $202.4
million from $1.73 billion at securitization. The
Certificates are collateralized by 39 mortgage loans ranging in size from
less than 1% to 16% of the pool, with the top ten
non-defeased loans representing 57% of the pool.
Eight loans, representing 13% of the pool, have defeased
and are secured by U.S. Government securities.
Nine loans, representing 15% 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.
Twenty loans have been liquidated from the pool, resulting in a
realized loss of $53.0 million (47% loss severity
on average). Currently one loan, representing 2% of
the pool, is in special servicing. Moody's has assumed
a high default probability for two poorly performing loans representing
less than 2% of the pool. Moody's has estimated an
aggregate $1.3 million loss (45% expected loss) from
the specially serviced and troubled loans.
Moody's was provided with full year 2010 operating results for 93%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 66% compared to 68%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 10% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 9.7%.
Excluding special serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.30X and 1.79X, respectively,
compared to 1.33X and 1.69X 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 top three performing conduit loans represent 27% of the pool
balance. The largest loan is Ohio Valley Plaza Loan ($33.1
million -- 16.3% of the pool), which is secured
by a 577,000 square foot (SF) power center located in St.
Clairsville, Ohio. Major tenants include Lowe's Home Improvement
Warehouse, Wal-Mart, Sam's Club and Kroger.
The property was 98% leased as of September 2011, which is
the same as at last review. Overall, property performance
is stable and is the loan is benefitting from amortization. Moody's
LTV and stressed DSCR are 75% and 1.36X, respectively,
compared to 85% and 1.28X at last review.
The second largest loan is the Tri-City Center Loan ($11.3
million -- 5.6% of the pool), which
is secured by a 153,559 SF anchored retail center located in San
Bernadino, California. The property was 99% leased
as of September 2011, which is the same as at last review.
Overall, property performance is stable and is the loan is benefitting
from amortization. Moody's LTV and stressed DSCR are 66%
and 1.55X, respectively, compared to 76% and
1.42X at last review.
The third largest loan is the Eastland Place Shopping Center Loan ($10.3
million -- 5.1% of the pool), which
is secured by a 202,051 SF anchored retail center located in Evansville,
Indiana. The property was 82% leased as of October 2011,
compared to 92% at the last review. Dollar Tree, which
leased over 5% of the net rentable area, recently vacated
the property and caused a majority of the occupancy decline since the
prior review. The loan is benefitting from amortization.
Moody's LTV and stressed DSCR are 84% and 1.28X, respectively,
compared to 66% and 1.55X at last review.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
rating is deemed "EU qualified by extension" and may still
be used by financial institutions for regulatory purposes until 30 April
2012. 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.
Amit Rustgi
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 Three CMBS Classes of LBCMT 1998-C1
