Approximately $1.67 Billion of Structured Securities Affected
New York, January 13, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of 14 classes,
confirmed one class and affirmed eight classes of Wachovia Bank Commercial
Mortgage Trust, Commercial Mortgage Pass-Through Certificates,
Series 2006-C26 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-PB, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-3FL, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-M, Confirmed at Aaa (sf); previously on
Dec 10, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. X-P, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. X-C, Affirmed at Aaa (sf); previously on
Jul 12, 2006 Definitive Rating Assigned Aaa (sf)
Cl. A-J, Downgraded to Baa1 (sf); previously
on Dec 10, 2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Baa3 (sf); previously on Dec 10,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Ba1 (sf); previously on Dec 10,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to B1 (sf); previously on Dec 10,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to B3 (sf); previously on Dec 10,
2010 Ba2 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Caa2 (sf); previously on Dec 10,
2010 B1 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa3 (sf); previously on Dec 10,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to C (sf); previously on Dec 10,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to C (sf); previously on Dec 10,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to C (sf); previously on Dec 10,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Dec 10,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. M, Downgraded to C (sf); previously on Dec 10,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. N, Downgraded to C (sf); previously on Dec 10,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. O, Downgraded to C (sf); previously on Dec 10,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. WM, Affirmed at Baa3 (sf); previously on Mar 25,
2010 Confirmed at Baa3 (sf)
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 and interest shortfalls. The confirmation and affirmations
are due to key parameters, including Moody's loan to value (LTV)
ratio, Moody's stressed 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. The affirmations
include five pooled classes, two interest only classes and one non-pooled
or rake class associated with the Woodlands Mall Loan.
On December 10, 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 7.8%
of the current pooled balance. At last review, Moody's cumulative
base expected loss was 4.6%. Moody's stressed scenario
loss is 22% of the current pooled 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 " US CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005.
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.
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 37
compared to 39 at Moody's prior full 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 January 31, 2008.
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 December 17, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 4% to $1.67
billion from $1.74 billion at securitization. The
Certificates are collateralized by 113 mortgage loans ranging in size
from less than 1% to 10.2% of the pool, with
the top ten loans representing 42% of the pool. The pool
does not contain any defeased loans. The largest loan, representing
10.2% of the pool, has an investment grade credit
estimate.
Thirty-four loans, representing 22% 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.
One loan has been repaid and one loan has been liquidated from the trust
since securitization, resulting in a $483,776 loss
(19.4% severity) from the liquidated loan. Currently
nine loans, representing 10% of the pool, are in special
servicing. The largest specially serviced loan is the Eastern Shore
Center Loan ($68.9 million -- 4.1%
of the pool), which was transferred to special servicing in July
2009 due to imminent monetary default. The loan is secured by the
borrower's interest in a 557,513 square foot (SF) Dillard's
anchored lifestyle center located near Mobile, Alabama. The
loan was modified effective September 2010 and the modification included
an interest rate reduction. The master servicer has recognized
an appraisal reduction of $39.7 million for this loan.
The remaining eight specially serviced loans are secured by a mix of property
types. The master servicer has recognized an aggregate $38.2
million appraisal reduction for six of the remaining specially serviced
loans. Moody's has estimated an aggregate loss of $86.2
million (57% expected loss on average) for all of the specially
serviced loans.
Moody's has assumed a high default probability for six poorly performing
loans representing 4% of the pool and has estimated a $15.6
million loss (based on a 58% probability of default and 40%
loss given default on average) from these troubled loans.
Based on the most recent remittance statement, Classes F through
P have experienced cumulative interest shortfalls totaling $7.7
million. Moody's anticipates that the pool will continue to experience
interest shortfalls because of both the exposure to specially serviced
loans. Interest shortfalls are caused by special servicing fees,
including workout and liquidation fees, ASERs and extraordinary
trust expenses, as well as loan modifications.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 88% and 92% of the pool, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 108% compared to 105% at last full review.
Moody's net cash flow reflects a weighted average haircut of 11%
to the most recently available net operating income. Moody's value
reflects a weighted average capitalization rate of 9.3%.
Excluding specially serviced and troubled loans, Moody's actual
DSCR is 1.32X as compared to 1.30X at last full review.
Moody's stressed DSCR is .99X. 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 loan with a credit estimate is the Woodlands Mall Loan ($171
million -- 10.2% of the pool), which
is secured by the borrower's interest in a 1.4 million SF
regional mall located 30 miles north of Houston in The Woodlands,
Texas. The property is anchored by Dillards, Macy's,
Sears and J.C. Penny. GGP is the loan sponsor.
The inline space was 97% leased as of June 2010, compared
to 100% at last review. The loan was modified on December
30, 2009. The modification extended the loan term by 60 months
and converted loan repayment from interest-only to an amortization
schedule. Class WM is a $9.8 million non-pooled
or rake class that is tied to The Woodlands Mall. Moody's current
credit estimates for the Woodlands Mall and associated rake class are
Baa2 and Baa3, respectively, the same as at last review.
The top three performing conduit loans represent 15% of the pool
balance. The largest loan is a 50% pari passu interest in
the Prime Outlets Pool II Loan ($145 million -- 8.7%
of the pool), which is secured by three Prime Outlet retail properties
totaling 1.5 million SF. The properties are located in Birch
Run, Michigan, Williamsburg, Virginia and Hagerstown,
Maryland. The portfolio benefits from strong management as Simon
Property Group acquired the three subject properties as part of its August
2010 acquisition of 21 Prime outlet malls. The properties were
93% leased as of July 2010 compared to 94% at last full
review. The loan is interest-only for its entire term.
Moody's LTV and stressed DSCR are 94% and 1.03X, respectively,
compared to 107% and 0.96X at last review.
The second largest conduit loan is the Chemed Center Leasehold Loan ($61
million -- 3.6% of the pool), which
is secured by a leasehold interest in a 551,000 square foot office
property located in Cincinnati, Ohio's CBD. The loan
began to amortize in April 2010. The collateral property was 89%
occupied as of September 2010, compared to 85% at last full
review. Moody's LTV and stressed DSCR are 87% and 1.24X,
respectively, compared to 97% and 1.18X at last review.
The loan secured by the fee interest in the Chemed Center is also in the
pool ($45 million -- 2.7% of the pool).
The third largest conduit loan is the Lincoln Place Loan ($49.6
million -- 3% of the pool). The loan is secured by
a 140,000 SF office property located in Miami Beach, Florida.
The property was abuild to suit for LNR Property (B2, stable outlook)
in 2002. The property serves as LNR's headquarters and is
100% leased to LNR throughout the term of the loan. Moody's
LTV and stressed DSCR are 116% and .84X as compared to 131%
and .79X at last full 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
Keith Banhazl
Vice President - Senior 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 14, Affirms Eight and Confirms One CMBS Class of WBCMT 2006-C26
