Approximately $878.9 Million of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of 13 classes
and affirmed seven classes of LB-UBS Commercial Mortgage Trust
2004-C2, Commercial Mortgage Pass-Through Certificates,
Series 2004-C2 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X-CP, Affirmed at Aaa (sf); previously on
Sep 28, 2004 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Mar 13,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aa1 (sf); previously on Mar 13,
2007 Upgraded to Aa1 (sf)
Cl. D, Downgraded to Aa3 (sf); previously on Nov 17,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to A2 (sf); previously on Nov 17,
2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Baa1 (sf); previously on Nov 17,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Ba2 (sf); previously on Nov 17,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to B1 (sf); previously on Nov 17,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to B3 (sf); previously on Nov 17,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to Caa3 (sf); previously on Nov 17,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to Ca (sf); previously on Nov 17,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. M, Downgraded to C (sf); previously on Nov 17,
2010 B1 (sf) Placed Under Review for Possible Downgrade
Cl. N, Downgraded to C (sf); previously on Nov 17,
2010 B2 (sf) Placed Under Review for Possible Downgrade
Cl. P, Downgraded to C (sf); previously on Nov 17,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. Q, Downgraded to C (sf); previously on Nov 17,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. S, Downgraded to C (sf); previously on Nov 17,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
RATINGS RATIONALE
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans.
The affirmations are due to key parameters, including Moody's loan
to value (LTV) ratio, the Herfindahl Index (Herf) and Moody's stressed
DSCR, 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 November 17, 2010, Moody's placed 13 classes on review
for possible downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of 3.4%
of the current balance. At last review, Moody's cumulative
base expected loss was 2.9%. Moody's stressed scenario
loss is 6.2% 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 methodologies used in these ratings were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005,
and "CMBS: Moody's Approach to Rating Large Loan/Single Borrower
Transactions" published in July 2000.
In addition to methodologies and research available on moodys.com,
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
as well as the excel-based CMBS Large Loan Model v. 8.0
which is used for Large Loan 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 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 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 16
compared to 18 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 8.0 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 July 16, 2009. 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 did not receive or take into account a third-party
due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past six months.
DEAL PERFORMANCE
As of the November 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 29% to $880.1
million from $1.23 billion at securitization. The
Certificates are collateralized by 72 mortgage loans ranging in size from
less than 1% to 17% of the pool, with the top ten
loans representing 34% of the pool. The pool contains four
loans, representing 40% of the pool, with investment
grade credit estimates. Eight loans, representing 5%
of the pool, have defeased and are collateralized with U.S.
Government securities, essentially the same as at last review.
Seventeen loans, representing 8% 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. Moody's has
assumed a high default probability for five of the watchlisted loans and
has estimated a $3.5 million loss (20% expected loss
based on a 50% default probability) from these troubled loans.
One loan has been liquidated from the pool, resulting in an aggregate
realized loss of $12.5 million (79% loss severity).
The pool had not experienced any realized losses at last review.
Seven loans, representing 5% of the pool, are currently
in special servicing. These loans are secured by a mix of property
types and each represents less than 2% of the pool. The
master servicer has recognized an aggregate $9.0 million
appraisal reduction for three of the specially serviced loans.
Moody's estimates an aggregate loss of approximately $18.4
million (45% expected loss on average) for the specially serviced
loans.
Moody's was provided with full year 2009 operating results for 98%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 82% compared to 97% at last
review. Moody's net cash flow reflects a weighted average haircut
of 14% 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 1.66X and 1.28X, respectively,
compared to 1.43X and 1.12X 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 GIC Office Portfolio Loan
($146.7 million -- 16.7% of the pool),
which is a pari passu interest in a $684.5 million first
mortgage loan. The loan is secured by 12 office properties totaling
6.4 million square feet and located in seven states. The
highest geographic concentrations are Chicago (39% of the net rentable
area (NRA)), suburban Philadelphia (17% of the NRA) and San
Francisco (12% of the NRA). As of January 2010, the
portfolio was 87% leased compared to 91% at last review.
The portfolio's performance has declined since last review due to decreased
rental revenues and increased expenses. The loan matures in January
2014. Moody's credit estimate and stressed DSCR are Baa3 and 1.45X,
respectively, compared to Baa2 and 1.44X at last review.
The second loan with a credit estimate is the Somerset Collection Loan
($125.5 million -- 14.3% of the pool),
which is a 50% pari passu interest in a $251.0 million
first mortgage loan. The loan is secured by the borrower's interest
in a 1.4 million square foot regional mall located in Troy,
Michigan. The center is the dominant mall in its trade area and
is anchored by Macy's, Nordstrom, Saks Fifth Avenue and Neiman
Marcus. As of December 2009, the property was 97%
leased compared to 99% at last review. The property is also
encumbered by a B-Note which is held outside the trust.
The loan is interest only for its entire 10-year term. Property
performance has improved since last review due to a drop in expenses.
Moody's credit estimate and stressed DSCR are A1 and 1.51X,
respectively, compared to Baa2 and 1.36X at last review.
The third loan with a credit estimate is the Farmers Market Loan ($40.2
million -- 4.6% of the pool), which is secured
by a 228,339 square foot mixed-use property (retail &
office) built in 1940 and renovated in 2002 and located in Los Angeles,
California. As of June 2010, the property was 98%
leased, the same as at last review. Property performance
has improved due to an increase in revenue. Moody's credit estimate
and stressed DSCR are Aa3 and 1.83X, respectively,
compared to A1 and 1.65X at last review.
The fourth loan with a credit estimate is the Ruppert Yorkville Towers
Loan ($40.2 million -- 4.6% of the pool),
which is secured by the borrower's interest in a high-rise,
825-unit multifamily 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
square feet of commercial space. The unsold units are either vacant,
occupied by market rate tenants or occupied by pre-conversion tenants
at below market rental rates. The majority of tenants pay rents
that are significantly below market. Moody's credit estimate is
Aaa, the same as at last review.
The top three performing conduit loans represent 18% of the pool
balance. The largest loan is the Maritime Plaza I and II Loan ($69.9
million -- 7.9% of the pool), which is secured
by two office buildings totaling 345,736 square feet. Built
in 2001 and renovated in 2003, the properties are situated at the
intersection of M Street and 12th Street in Washington, DC.
As of June 2010, the properties were 100% leased, the
same as at last review. The largest tenant is Computer Sciences
Corporation (37% of the NRA, lease expiration in 2013 and
2014). Financial performance has been stable and the loan has amortized
5% since last review. Moody's LTV and stressed DSCR are
75% and 1.31X, respectively, compared to 85%
and 1.14X at the last review.
The second largest loan is the Inland Center Loan ($47.1
million -- 5.4% of the pool), which is secured
by the borrower's interest in a 1.0 million square foot regional
mall located in San Bernardino, California. The loan was
originally scheduled to mature in February 2009. However,
it has been extended through February 2011 and as of June 2009,
all excess cash flow has been applied to pay down the loan's principal
balance. Property performance has been stable and the loan has
amortized 11% since last review. Moody's LTV and stressed
DSCR are 79% and 1.37X, respectively, compared
to 111% and 0.97X at last review.
The third largest loan is the 280 Metro Center Loan ($43.1
million -- 4.9% of the pool), which is secured
by the borrower's interest in a 351,000 square foot anchored
retail center built in 1986. The center is located in Colma,
California, which is ten miles south of San Francisco. The
non-collateral anchors include Home Depot and Joann's Fabrics.
The anchors included in the collateral are Marshalls, Nordstrom's
Rack and Bed, Bath & Beyond. The property was 99%
leased as of December 2009, the same as at last review. Property
performance has been stable and the loan has amortized 3% since
last review. Moody's LTV and stressed DSCR are 85% and 1.15X,
respectively, compared to 89% and 1.10X 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 purposes 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
Christie Edwards
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sandra Ruffin
VP - Senior Credit Officer
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 13 and Affirms Seven CMBS Classes of LB-UBS 2004-C2
