Approximately $1.44 Billion of Structured Securities Affected
New York, December 10, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of 17 classes
and affirmed six classes of Wachovia Bank Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2004-C34
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Nov 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Nov 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-PB, Affirmed at Aaa (sf); previously on
Nov 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Nov 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Nov 27, 2007 Definitive Rating Assigned Aaa (sf)
Cl. A-M, Downgraded to Aa2 (sf); previously on
Nov 18, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. A-J, Downgraded to Baa1 (sf); previously
on Nov 18, 2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Baa2 (sf); previously on Nov 18,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Baa3 (sf); previously on Nov 18,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to B1 (sf); previously on Nov 18,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to B2 (sf); previously on Nov 18,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to B3 (sf); previously on Nov 18,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Caa1 (sf); previously on Nov 18,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Caa2 (sf); previously on Nov 18,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Ca (sf); previously on Nov 18,
2010 B1 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to C (sf); previously on Nov 18,
2010 B3 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Nov 18,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. M, Downgraded to C (sf); previously on Nov 18,
2010 Caa1 (sf) Placed Under Review for Possible Downgrade
Cl. N, Downgraded to C (sf); previously on Nov 18,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. O, Downgraded to C (sf); previously on Nov 18,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. P, Downgraded to C (sf); previously on Nov 18,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. Q, Downgraded to C (sf); previously on Nov 18,
2010 Caa3 (sf) Placed Under Review for Possible Downgrade
Cl. IO, Affirmed at Aaa (sf); previously on Nov 27,
2007 Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The downgrades are due to higher expected losses for the pool resulting
from anticipated losses from specially serviced and troubled loans and
concerns about loans approaching maturity in an adverse environment.
Thirteen loans, representing 13% of the pool, have
either matured or mature within the next 24 months and have a Moody's
stressed debt coverage ratio (DSCR) less than 1.0X.
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 18, 2010 Moody's placed 17 classes on review for possible
downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
8.7% of the current balance. At last review,
Moody's cumulative base expected loss was 3.8%.
Moody's stressed scenario loss is 30.4% 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 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 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 February 11, 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 1.0% to $1.46
billion from $1.48 billion at securitization. The
Certificates are collateralized by 113 mortgage loans ranging in size
from less than 1% to 11% of the pool, with the top
ten loans representing 43% of the pool. The pool includes
one loan with an investment grade credit estimate, representing
1% off the pool.
Twenty-three loans, representing 36% 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 seven of the watchlisted loans
as well as two additional loans that mature within the next 24 months
and have a Moody's stressed DSCR less than 1.0X. Moody's
has estimated a $33.5 million loss (20% expected
loss based on an 50% default probability) from these troubled loans.
The pool has not experienced any realized losses. Nine loans,
representing 10% of the pool, are currently in special servicing.
The largest specially serviced loan is the Sheraton Park Hotel --
Anaheim, CA Loan ($65 million -- 4.4%
of the pool), which is secured by a 490-room full-service
hotel located in Anaheim, California. This loan was transferred
to special servicing in July 2010 due to imminent monetary default.
Property performance has declined since securitization due to a 29%
decline in room revenue. The remaining eight specially serviced
loans are a mix of multifamily, office, retail, industrial
and hotel properties and each represent less than 2% of the pool.
The master servicer has recognized an aggregate $22.4 million
appraisal reduction for seven of the specially serviced loans.
Moody's estimates an aggregate loss of approximately $51.3
million (35% expected loss on average) for all of the specially
serviced loans.
Moody's was provided with full year 2009 operating results for 92%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 117% compared to 107%
at securitization. Moody's net cash flow reflects a weighted
average haircut of 12% to the most recently available net operating
income. Moody's value reflects a weighted average capitalization
rate of 9.7%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.29X and 0.93X, respectively,
compared to 1.30X and 0.95X at securitization. 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.
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 26
compared to 30 at securitization.
The loan with a credit estimate is the Greentree Shopping Center Loan
($10.6 million -- 0.7% of the pool),
which is secured by a 172,807 square foot (SF) retail center located
in Naples, Florida. The property was 95% leased as
of June 2010 compared to 98% at securitization. Property
performance has been stable since securitization. Moody's current
credit estimate and stressed DSCR are Aa3 and 1.75X, respectively,
compared to Aa3 and 1.77X at securitization.
The top three performing conduit loans represent 22% of the pool
balance. The largest loan is the Ashford Hospitality Pool 5 Loan
($158.1 million -- 10.8% of the pool),
which is secured by five cross-collateralized and cross-defaulted
full-service hotels located in Arizona, New Jersey,
North Carolina, Pennsylvania and Texas. Three of the properties
are flagged by Marriott, one is flagged by Sheraton and one is flagged
by Embassy Suites. The portfolio contains a total of 1,141
rooms. Performance has declined since securitization due to a decline
in room revenue. However, the combined portfolio continues
to show improvement versus the competitive set and has shown an improvement
in revenue per available room in the third quarter of 2010. Moody's
LTV and stressed DSCR are 143% and 0.84X, respectively,
compared to 121% and 1.01X at securitization.
The second largest loan is the Nestle 94 Pool Loan ($106 million
-- 7.2%), which is secured by three cross-collateralized
and cross-defaulted industrial properties located in California,
Indiana and Pennsylvania. The properties are all 100% leased
to Nestle through December 2012. Property performance has improved
since securitization due to an increase in base rent. The loan
is also encumbered by a $40.5 million B Note which is held
outside of the trust. Moody's LTV and stressed DSCR are 95%
and 1.02X, respectively, compared to 98% and
0.96X at securitization.
The third largest loan is the 2100 Ross Loan ($61 million --
4.2%), which is secured by a 843,728 SF office
building in Dallas, Texas. The property was 66% leased
as of June 2010 compared to 84% at securitization. The loan
is currently on the watchlist due to occupancy concerns, however,
there are lease renewals and negotiations in process. Moody's LTV
and stressed DSCR are 115% and 0.92X, respectively,
compared to 103% and 1.03X at securitization.
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
Michael M. Gerdes
Senior Vice President
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 17 and Affirms Six CMBS Classes of WBCMT 2007-C34
