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Rating Action:

Moody's Downgrades 13 and Affirms Seven CMBS Classes of LB-UBS 2004-C2

17 Dec 2010

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
No Related Data.
© 2018 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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