Approximately $981.5 Million of Structured Securities Affected
New York, December 10, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of 12 classes,
confirmed three classes and affirmed five classes of LB-UBS Commercial
Mortgage Pass-Through Certificates, Series 2004-C4
as follows:
Cl. A-1B, Affirmed at Aaa (sf); previously on
Jun 11, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jun 11, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jun 11, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Jun 11, 2004 Definitive Rating Assigned Aaa (sf)
Cl. B, Confirmed at Aaa (sf); previously on Oct 7,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. C, Confirmed at Aa1 (sf); previously on Oct 7,
2010 Aa1 (sf) Placed Under Review for Possible Downgrade
Cl. D, Confirmed at Aa2 (sf); previously on Oct 7,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to A2 (sf); previously on Oct 7,
2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to A3 (sf); previously on Oct 7,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Baa2 (sf); previously on Oct 7,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Ba2 (sf); previously on Oct 7,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Caa2 (sf); previously on Oct 7,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to Ca (sf); previously on Oct 7,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Oct 7,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. M, Downgraded to C (sf); previously on Oct 7,
2010 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. N, Downgraded to C (sf); previously on Oct 7,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. P, Downgraded to C (sf); previously on Oct 7,
2010 B1 (sf) Placed Under Review for Possible Downgrade
Cl. Q, Downgraded to C (sf); previously on Oct 7,
2010 B2 (sf) Placed Under Review for Possible Downgrade
Cl. S, Downgraded to C (sf); previously on Oct 7,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. X, Affirmed at Aaa (sf); previously on Jun 11,
2004 Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The downgrades are due to higher expected losses for the pool resulting
from interest shortfalls and realized and anticipated losses from specially
serviced and troubled loans. The confirmations and 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.
On October 7, 2010, Moody's placed 15 classes on review
for possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
4.4% of the current balance. At last review,
Moody's cumulative base expected loss was 0.9%.
Moody's stressed scenario loss is 7.9% 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 stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010
and 2011; we expect overall a sluggish recovery in most of the world's
largest economies, returning to trend growth rate with elevated
fiscal deficits and persistent unemployment levels.
The principal methodology used in this rating was "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
In addition to methodologies and research, Moody's publishes a weekly
summary of structured finance credit, ratings and methodologies,
available to all registered users of our website, at www.moodys.com/SFQuickCheck.
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 pay down 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 29,
the same as at last review.
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 30, 2007. 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 received and took into account one or
more third party due diligence reports on the underlying assets or financial
instruments in this transaction and the due diligence reports had a neutral
impact on the ratings.
DEAL PERFORMANCE
As of the November 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 30% to $987.4
million from $1.4 billion at securitization. The
Certificates are collateralized by 86 mortgage loans ranging in size from
less than 1% to 26% of the pool, with the top ten
loans representing 54% of the pool. Seven loans, representing
5% of the pool, have defeased and are collateralized by U.S.
Government securities. The pool includes four loans, representing
48% of the pool, with investment grade credit estimates.
Nineteen loans, representing 31% 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.
Five loans have been liquidated from the pool since securitization,
resulting in a $6.4 million loss (42% loss severity
on average). Seven loans, representing 8% of the pool,
are currently in special servicing. The largest specially serviced
loan is the Enterprise Technology Center Loan ($32 million --
8.3% of the pool) which is secured by a 344,000 square
foot (SF) office complex located in Scotts Valley, California.
The loan was transferred to special servicing April 2010 due to imminent
default and is presently in foreclosure. The master servicer recognized
an appraisal reduction of $43.3 million for this loan in
November 2010.
The remaining six specially serviced loans are secured by a mix of property
types. The master servicer has recognized an aggregate $3.8
million appraisal reduction for two of the remaining specially serviced
loans. Moody's has estimated an aggregate $26.7
million loss (33% expected loss on average) for all of the specially
serviced loans.
Moody's has assumed a high default probability for eight poorly
performing loans representing 5% of the pool and has estimated
a $10.6 million loss (21% expected loss based on
a 50% probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 87%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 88% compared to 91%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 13.7% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 9.4%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.52X and 1.21X, respectively,
compared to 1.46X and 1.11X 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 Westfield Shoppingtown
Garden State Plaza Loan ($260 million -- 26.3%
of the pool), which represents a 50% pari-passu interest
in a first mortgage loan. The loan is secured by the borrower's
interest in an enclosed 2.0 million SF super-regional shopping
mall located in Paramus, New Jersey. The mall is anchored
by Macy's, Nordstrom, J.C. Penney,
Neiman Marcus and Lord and Taylor. Westfield is the loan sponsor.
The loan is interest-only for its entire 10-year term.
Moody's current credit estimate and stressed DSCR are A1 and 1.47X,
respectively, compared to A2 and 1.27X at last review.
The second loan with a credit estimate is the Two Penn Plaza Loan ($109.8
million -- 11.3% of the pool), which represents
a 50% participation interest in a $219.6 million
first mortgage loan. The loan is secured by a 1.5 million
SF Class A office building located in New York, New York.
The property was 98% leased as of December 2009 compared to 98%
at last review. Vornado is the loan sponsor. Moody's
current credit estimate and stressed DSCR are A1 and 1.75X,
compared to Baa1 and 1.15X at last review.
The third loan with a credit estimate is the Town East Mall Loan ($100.9
million -- 10.2% of the pool) which is secured by a
1.2 million SF regional shopping mall in Mesquite, Texas.
The mall is anchored by Macy's, Sears, Dillard's
and J.C. Penney. Financial performance improved since
last review. Mall occupancy also increased to 98% as of
December 2009 compared to 93% at last review. GGP is the
loan sponsor. Moody's current credit estimate and stressed
DSCR are Baa1 and 1.59X, respectively, compared to
Baa2 and 1.32X at last review.
The top three performing conduit loans represent 8% of the pool
balance. The largest loan is the Ritz-Carlton Chicago Hotel
Loan ($38.5 million -- 3.9% of the pool),
which is secured by a 435-room full-service hotel located
in the Watertower Complex on the Magnificent Mile in downtown Chicago,
Illinois. Financial performance has declined since last review
due to recent hotel renovation activity and a highly competitive hospitality
market. Occupancy for the trailing twelve months ending June 2010
was 55%,compared to 72% at last review. Moody's
LTV and stressed DSCR are 117% and 0.92X, respectively,
compared to 66% and 1.64X at last review.
The second largest loan is the Park Parthenia Apartments Loan ($22.1
million -- 2.2% of the pool), which is secured
by a 399-unit apartment property in Northridge, California.
The property's financial performance has improved due to an increase
in revenues. The property was 93% leased as of June 2010
compared to 95% in December 2009. Moody's LTV and
stressed DSCR are 87% and 1.08X, respectively,
compared to 109% and 1.02X at last review.
The third largest loan is the Sirata Beach Resort and Conference Center
Loan ($21.8 million -- 2.2% of the pool),
which is secured by a 380-room hotel and conference center in St.
Pete Beach, Florida. Property performance has been stable.
Occupancy for the trailing twelve months ending June 2010 was 72%,
compared to 70% in December 2008. Moody's LTV and
stressed DSCR are 63% and 1.98X, respectively,
compared to 86% and 1.45X at last review.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings; parties not involved in the ratings;
public information; confidential and proprietary Moody's investors
Service information and confidential and proprietary Moody's Analytics
information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purpose of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service 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 the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Gregory Reed
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Keith Banhazl
Vice President - Senior Analyst
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 Downgrades 12, Confirms Three and Affirms Five CMBS Classes of LBUBS 2004-C4
