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Rating Action:

Moody's Downgrades Eight and Affirms 14 CMBS Classes of WBCMT 2006-C26

29 Nov 2012

Approximately $1.40 Billion of Structured Securities Affected

New York, November 29, 2012 -- Moody's Investors Service (Moody's) downgraded the ratings of eight classes and affirmed 14 classes of Wachovia Bank Commercial Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2006-C26:

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, Downgraded to Aa2 (sf); previously on Jan 13, 2011 Confirmed at Aaa (sf)

Cl. A-J, Downgraded to Ba1 (sf); previously on Jan 13, 2011 Downgraded to Baa1 (sf)

Cl. B, Downgraded to B1 (sf); previously on Jan 13, 2011 Downgraded to Baa3 (sf)

Cl. C, Downgraded to B2 (sf); previously on Jan 13, 2011 Downgraded to Ba1 (sf)

Cl. D, Downgraded to Caa1 (sf); previously on Jan 13, 2011 Downgraded to B1 (sf)

Cl. E, Downgraded to Caa2 (sf); previously on Jan 13, 2011 Downgraded to B3 (sf)

Cl. F, Downgraded to Caa3 (sf); previously on Jan 13, 2011 Downgraded to Caa2 (sf)

Cl. G, Downgraded to Ca (sf); previously on Jan 13, 2011 Downgraded to Caa3 (sf)

Cl. H, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. J, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. K, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. L, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. M, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. N, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. O, Affirmed at C (sf); previously on Jan 13, 2011 Downgraded to C (sf)

Cl. X-C, Affirmed at Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

Cl. X-P, Affirmed at Aaa (sf); previously on Jul 12, 2006 Definitive Rating Assigned Aaa (sf)

RATINGS RATIONALE

The downgrades are due to higher than anticipated realized and expected losses from specially serviced and troubled loans.

The 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. The ratings of the IO Classes, X-C and X-P, are consistent with the credit performance of their referenced classes and are thus affirmed.

Moody's rating action reflects a base expected loss of 10.8% of the current balance compared to 8.4% at last review. Moody's provides a current list of base expected 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.

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Primary sources of assumption uncertainty are the extent of growth in the current macroeconomic environment and commercial real estate property markets. Commercial real estate property values are continuing to move in a positive direction along with a rise in investment activity and stabilization in core property type performance. Limited new construction and moderate job growth have aided this improvement. However, a consistent upward trend will not be evident until the volume of investment activity steadily increases for a significant period, non-performing properties are cleared from the pipeline, and fears of a Euro area recession are abated.

The hotel sector is performing strongly with eight straight quarters of growth and the multifamily sector continues to show increases in demand with a growing renter base and declining home ownership. Slow recovery in the office sector continues with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow and employers are considering decreases in the leased space per employee. Also, primary urban markets are outperforming secondary suburban markets. Performance in the retail sector continues to be mixed with retail rents declining for the past four years, weak demand for new space and lackluster sales driven by discounting and promotions. However, rising wages and reduced unemployment, along with increased consumer confidence, is helping to spur consumer spending resulting in increased sales. Across all property sectors, the availability of debt capital continues to improve with robust securitization activity of commercial real estate loans supported by a monetary policy of low interest rates.

Moody's central global macroeconomic scenario maintains its forecast of relatively robust growth in the US and an expectation of a mild recession in the euro area for 2012. Downside risks remain significant, and elevated downside risks and their materialization could pose a serious threat to the outlook. Major downside risks include: a deeper than expected recession in the euro area; the potential for a hard landing in major emerging markets; an oil supply shock; and material fiscal tightening in the US given recent political gridlock. Healthy but below-trend growth in GDP is expected through the rest of this year and next with risks trending to the downside.

The methodologies used in this rating were "Moody's Approach to Rating U.S. CMBS Conduit Transactions" published in September 2000, and "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.61 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 (sf) 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 (sf) 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 (sf) and B2 (sf), 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 assessments is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the credit assessment 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 credit assessment level, is incorporated for loans with similar credit assessment in the same transaction.

Moody's review also incorporated the CMBS IO calculator ver1.1 which uses the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit estimates; original and current bond balances grossed up for losses for all bonds the IO(s) reference(s) within the transaction; and IO type corresponding to an IO type as defined in the published methodology. The calculator then returns a calculated IO rating based on both a target and mid-point . For example, a target rating basis for a Baa3 (sf) rating is a 610 rating factor. The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e. the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf) rating factor of 940). If the calculated IO rating factor is 700, the CMBS IO calculator ver1.1 would provide both a Baa3 (sf) and Ba1 (sf) IO indication for consideration by the rating committee.

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 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 a review utilizing MOST® (Moody's Surveillance Trends) Reports and a proprietary program that highlights significant credit changes that have occurred in the last month as well as cumulative changes since the last full transaction review. On a periodic basis, Moody's also performs a full transaction review that involves a rating committee and a press release. Moody's prior transaction review is summarized in a press release dated November 30, 2011. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

DEAL PERFORMANCE

As of the November 19th, 2012 distribution date, the transaction's aggregate certificate balance has decreased by 19% to $1.41 billion from $1.73 billion at securitization. The Certificates are collateralized by 100 mortgage loans ranging in size from less than 1% to 8% of the pool, with the top ten loans representing 40% of the pool. There is one fully defeased loan, representing less than 1% of the pool, that is securitized by U.S. Government securities.

Twenty-eight loans are on the master servicer's watchlist, representing approximately 26% of the pool. 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.

Eight loans have been liquidated since securitization, of which five have generated a loss of $15.1 million (38% average loss severity). Currently, there are 13 loans in special servicing, representing approximately 16% of the pool balance. The largest specially serviced loan is the Tan-Tar-A Resort Loan ($46.1 million -- 3.3 % of the pool), which is secured by a 497-room resort hotel located in Osage Beach, Missouri, which is approximately 200 miles from St. Louis. The hotel consists of five multi-story guest room buildings, 21 cottage style buildings and various other buildings. The resort includes approximately 90,000 square feet (SF) of meeting space, 27 holes of golf, a 20,000 SF water park, 119 slip marina, health club and spa, and other amenities. The loan was transferred to special servicing in April 2012 for imminent monetary default. Per the special servicer, a receiver was appointed in September 2012. As of December 2011, the hotel's occupancy rate and revenue per available room (RevPAR) were 48.9% and $48.46. Trailing 12 month financials ending in September 2012 indicate an occupancy rate and RevPAR of 48.8% and $48.07. The master servicer has recognized an $11.3 million appraisal reduction amount (ARA) for this loan and as well as additional $60.1 million ARA for ten other specially serviced loans. Moody's estimate an aggregate loss of $84.7 million (41% expected loss) from 12 out of the 13 loans in specially servicing.

Moody's has assumed a high default probability for 11 poorly performing loans representing 16% of the pool and has estimated a $45.8 million loss (20% expected loss based on a 50% probability default) from these troubled loan.

Based on the most recent remittance statement, Classes G through P have experienced cumulative interest shortfalls totaling $15.1 million. At last review, interest shortfalls totaled $10.7 million. Moody's anticipates that the pool will continue to experience interest shortfalls because of the exposure to specially serviced loans. Interest shortfalls are caused by special servicing fees, including workout and liquidation fees, appraisal subordinate entitlement reductions (ASERs), loan modifications and extraordinary trust expenses

Excluding defeased and specially serviced loans, Moody's was provided with full year 2011 and partial year 2012 operating results for 93% and 86% of the pool. Excluding defeased, specially serviced and troubled loans, Moody's weighted average conduit LTV is 99% compared to 97% at Moody's prior. Moody's net cash flow (NCF) reflects a weighted average haircut of 10% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.3%.

Excluding defeased, specially serviced and troubled loans, Moody's actual and stressed conduit DSCRs are 1.33X and 1.06X, respectively, compared to 1.35X and 1.07X at last review. Moody's actual DSCR is based on Moody's net cash flow and the loans 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 top three performing loans represent 19% of the pool balance. The largest loan is the Prime Outlets Pool II Loan ($140.9 million -- 10.0% of the pool), which represents a 50% pari passu interest in a portfolio of three outlet retail properties totaling 1.5 million SF. The loan is also encumbered by a $17.0 million B- note. The sponsor is Simon Property Group. The three retail properties are located in Birch Run, Michigan, Williamsburg, Virginia and Hagerstown, Maryland. As of June 2012, the portfolio was 93% leased compared to 92% at last review. Performance remains stable and the loan benefits from amortization. Moody's LTV and stressed DSCR are 85% and 1.15X, respectively, compared to 89% and 1.10X at last full review.

The second largest loan is the Eastern Shore Centre Loan ($69.5 million -- 4.9% of the pool), which is secured by a 432,689 SF life-style retail property located near Mobile, Alabama. The loan was returned from special servicing in February 2011 after an interest rate modification and has remained since then on the master servicer's watch list for low debt service coverage. The property is shadowed anchored by Dillard's. The main in-line tenants include Belk's, Barnes and Noble and Bed, Bath and Beyond. As of June 2012, the collateral was 81% leased; since 2008 the property's historical occupancy rate has ranged from the low to mid 80%. Per the master servicer, retail sales at the center have been lower than expected; moreover, 14% of the tenants are paying percent rent as a rent concession instead of full rent. Moody's has identified this as a troubled loan. Moody's LTV and stressed DSCR are 239% and 0.63X, respectively, compared to 248% and 0.38X at last full review.

The third largest loan is the Chemed Center Leasehold Loan ($59.3 million -- 4.2% of the pool), which is secured by a leasehold interest in a 551,000 square foot office property located in Cincinnati, Ohio's Central Business District (CBD). The ground lease is for 99 years and expires in April 2105. The loan secured by the fee interest in the Chemed Center is also securitized in the pool. As of June 2012, the collateral was 97% leased compared to and 95% in December 2011. The largest tenants are Dinsmore & Shohl LLP (31% of the NRA; lease expiration in December 2018); PNC Bank (16% of the NRA; lease expiration in February 2014) and Chemed Corporation (11% of the NRA; lease expiration in April 2016). The collateral's in-place rents are approximately $26.00 per square foot. Per CBRE Economic Advisors, Class A office rents in Cincinnati's CBD are approximately $17.00 per square foot. The loan matures in May 2016. Moody's LTV and stressed DSCR are 79% and 1.37X, respectively, compared to 76% and 1.43X at last full review.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the 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 did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Juan Acosta
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Keith Banhazl
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades Eight and Affirms 14 CMBS Classes of WBCMT 2006-C26
No Related Data.
© 2021 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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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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