Approximately $761 Million of Structured Securities Affected
New York, November 11, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of eight classes
and affirmed eight classes of Wachovia Bank Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2003-C7
as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Nov 6, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Nov 6, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-C, Affirmed at Aaa (sf); previously on
Nov 6, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Dec 21,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Dec 21,
2006 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aa2 (sf); previously on Aug 21,
2008 Upgraded to Aa2 (sf)
Cl. E, Affirmed at A1 (sf); previously on Aug 21,
2008 Upgraded to A1 (sf)
Cl. F, Affirmed at A3 (sf); previously on Aug 21,
2008 Upgraded to A3 (sf)
Cl. G, Downgraded to Baa3 (sf); previously on Nov 6,
2003 Definitive Rating Assigned Baa2 (sf)
Cl. H, Downgraded to B1 (sf); previously on Nov 6,
2003 Definitive Rating Assigned Baa3 (sf)
Cl. J, Downgraded to B3 (sf); previously on Nov 6,
2003 Definitive Rating Assigned Ba1 (sf)
Cl. K, Downgraded to Caa3 (sf); previously on Nov 6,
2003 Definitive Rating Assigned Ba2 (sf)
Cl. L, Downgraded to Ca (sf); previously on Nov 6,
2003 Definitive Rating Assigned Ba3 (sf)
Cl. M, Downgraded to Ca (sf); previously on Nov 6,
2003 Definitive Rating Assigned B1 (sf)
Cl. N, Downgraded to C (sf); previously on Nov 6,
2003 Definitive Rating Assigned B2 (sf)
Cl. O, Downgraded to C (sf); previously on Nov 6,
2003 Definitive Rating Assigned B3 (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 concerns about loans approaching maturity in an adverse environment.
Twenty-four loans, representing 26% of the pool,
have either matured or will mature within the next 36 months and have
a Moody's stressed debt service 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.
Moody's rating action reflects a cumulative base expected loss of
5.1% of the current balance. At last review,
Moody's cumulative base expected loss was 2.0%.
Moody's stressed scenario loss is 10.0% 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 U.S. Conduit Transactions" published
in September 2000.
The methodology is available on Moody's website at www.moodys.com.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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 August 21, 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 October 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 24% to $773
million from $1.01 billion at securitization. The
Certificates are collateralized by 106 mortgage loans ranging in size
from less than 1% to 10% of the pool, with the top
ten loans representing 40% of the pool. Sixteen loans,
representing 13% of the pool, have defeased and are collateralized
with U.S. Government securities. At last review the
Regency Square Mall ($45.1 million -- 5.8%
of the pool) had an investment grade credit estimate. However,
due to a decline in performance and increased leverage, this loan
is now analyzed as part of the conduit pool.
Eighteen loans, representing 20% 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 four of the watchlisted loans
and has estimated a $9.8 million loss (28% expected
loss based on an 70% default probability) from these troubled loans.
Three loans have been liquidated from the pool, resulting in an
aggregate realized loss of $4.9 million (22% loss
severity overall). Four loans, representing 8% of
the pool, are currently in special servicing. The largest
specially serviced loan is the Santa Clara County Office Loan ($33.4
million -- 4.3%), which is secured by a 152,000
square foot office property located in San Jose, California.
The loan was transferred into special servicing in January 2010 due to
the borrower's bankruptcy filing. The property is 100%
leased to Santa Clara County through December 2012. The remaining
loans in special servicing are secured by office properties and each represent
less than 2% of the pool. Moody's has estimated an
aggregate $18.3 million loss (31% expected loss on
average) for the specially serviced loans.
Moody's was provided with full year 2009 operating results for 96%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 82% compared to 87%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 13% to the most recently available
net operating income. Moody's value reflects a weighted average
capitalization rate of 8.9%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.57X and 1.24X, respectively,
compared to 1.46X and 1.16X 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.
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 28
compared to 35 at Moody's prior review.
The top three performing conduit loans represent 20% of the pool
balance. The largest loan is the Chelsea Market Loan ($79.3
million -- 10.3%), which represents a 50%
participation interest in a $158.6 million first mortgage
loan. The loan is secured by a 1.1 million square foot Class
B loft-style office building with ground level retail located in
the Chelsea office submarket of New York City. The property was
95% leased as of December 2009 compared to 99% at last review.
The loan sponsor is The Jamestown Companies. Moody's LTV
and stressed DSCR are 61% and 1.59X, respectively,
compared to 78% and 1.24X at last review.
The second largest loan is the Regency Square Mall Loan ($45.1
million -- 5.8% of the pool), which represents
a 50% participation interest in a $90.2 million first
mortgage loan. The loan is secured by the borrower's interest in
a 1.5 million square foot regional mall located in Jacksonville,
Florida. The mall is anchored by Sears, Dillard's,
Belk and J.C. Penney. The center was 93% leased
as of December 2009 compared to 96% at last review. The
loan sponsor is General Growth Properties, Inc. The property's
reported NOI declined 24% from 2008 to 2009. Moody's
LTV and stressed DSCR are 98% and 0.96X, respectively,
compared to 63% and 1.58X at last review.
The third largest loan is the Columbia Place Mall Loan ($28.5
million -- 3.7% of the pool), which is secured
by the borrower's interest in a 1.1 million square foot regional
mall located in Columbia, South Carolina. The center is anchored
by Sears and Macy's. The loan is currently on the watchlist due
to the property's declining performance which is a direct result of decreasing
occupancy and rental revenues. The property has lost two anchor
tenants (Dillard's and Steve and Barry's) since securitization
and these spaces are vacant. The loan sponsor is CBL & Associates
Properties, Inc. Moody's considers this loan to be
a high default risk and has identified it as a troubled loan. Moody's
LTV and stressed DSCR are 143% and 0.70X, respectively,
compared to 74% and 1.43X 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 purpose 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.
Moody's Downgrades Eight and Affirms Eight CMBS Classes of WBCMT 2003-C7
