Approximately $679.2 Million of Structured Securities Affected
New York, October 07, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of eight classes
and affirmed nine classes of COMM 2003-LNB1, Commercial Mortgage
Pass-Through Certificates as follows:
Cl. A-1, Affirmed at Aaa (sf); previously on
Jul 3, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-2, Affirmed at Aaa (sf); previously on
Jul 3, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Jul 3, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Feb 2,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Feb 2,
2007 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aa3 (sf); previously on Feb 2,
2007 Upgraded to Aa3 (sf)
Cl. E, Affirmed at A1 (sf); previously on Feb 2,
2007 Upgraded to A1 (sf)
Cl. F, Affirmed at A3 (sf); previously on Feb 2,
2007 Upgraded to A3 (sf)
Cl. G, Downgraded to Ba1 (sf); previously on Feb 2,
2007 Upgraded to Baa1 (sf)
Cl. H, Downgraded to B2 (sf); previously on Jul 3,
2003 Definitive Rating Assigned Baa3 (sf)
Cl. J, Downgraded to Caa2 (sf); previously on Jul 3,
2003 Definitive Rating Assigned Ba1 (sf)
Cl. K, Downgraded to Caa3 (sf); previously on Jul 3,
2003 Definitive Rating Assigned Ba2 (sf)
Cl. L, Downgraded to C (sf); previously on Jul 9,
2009 Downgraded to B1 (sf)
Cl. M, Downgraded to C (sf); previously on Jul 9,
2009 Downgraded to B2 (sf)
Cl. N, Downgraded to C (sf); previously on Jul 9,
2009 Downgraded to Caa1 (sf)
Cl. O, Downgraded to C (sf); previously on Jul 9,
2009 Downgraded to Caa3 (sf)
Cl. X-1, Affirmed at Aaa (sf); previously on
Jul 3, 2003 Definitive Rating Assigned Aaa (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 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 the current ratings.
Moody's rating action reflects a cumulative base expected loss of
6% of the current balance. At last review, Moody's
cumulative base expected loss was 2%. Moody's stressed
scenario loss is 9% 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 rating COMM 2003-LNB1,
Commercial Mortgage Pass-Through Certificates was "CMBS:
Moody's Approach to Rating Fusion Transactions" rating methodology
published in April 2005. 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 moodsy.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 credit estimate 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 estimate 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 July 9, 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
6 months.
As of the September 10, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 19% to $687.1
million from $846.30 million at securitization. The
Certificates are collateralized by 79 mortgage loans ranging in size from
less than 1% to 10% of the pool, with the top ten
loans representing 51% of the pool. The pool includes four
loans, representing 36% of the pool, with investment
grade credit estimates. Ten loans, representing 14%
of the pool, have defeased and are collateralized with U.S.
Government securities, the same as at last review.
Fifteen loans, representing 14% 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.
Three loans have been liquidated from the pool since securitization,
resulting in an aggregate $4.8 million loss (41%
loss severity on average). Currently, six loans, representing
4% of the pool, are in special servicing. The largest
specially serviced loan is the Quality Inn & Holiday Inn Loan ($11.4
million -- 2% of the pool), which is secured by two
limited service hotels, totaling 451 rooms, located in Hampton,
Virginia. The loan was transferred to special servicing in May
2007 due to imminent default and is currently in the process of foreclosure.
On September 23, 2010 the master servicer declared the loan non-recoverable
and will no longer be advancing interest payments. This will be
reflected in the October remittance statement. In addition the
servicer will also begin recouping approximately$500,000
of funds previously advanced on this loan beginning with the October remittance
statement. As a result, it is anticipated that interest shortfalls
will increase significantly beginning in October, affecting Classes
G through NR.
The master servicer has recognized an aggregate $4.3 million
appraisal reduction on three of the specially serviced loans. Moody's
has estimated an aggregate $19.9 million loss (81%
expected loss on average) for the specially serviced loans.
Moody's has assumed a high default probability for nine poorly performing
loans representing 10% of the pool. Moody's has estimated
a $14.5 million loss (22% expected loss based on
a 63% probability default) from the troubled loans.
Moody's was provided with full year 2008 and 2009 operating results
for 97% and 96% of the pool, respectively, of
the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 85% compared to 92%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 11.1% 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
and stressed DSCRs are 1.49X and 1.22X, respectively,
compared to 1.34X and 1.13X 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 24
compared to 25 at Moody's prior review.
The largest loan with a credit estimate is the 75 Rockefeller Plaza Loan
($65.0 million -- 9.5% of the pool),
which is secured by a 578,2000 square foot (SF) office building
that is part of the Rockefeller Center complex in New York City.
The property is 100% leased to Time Warner Companies Inc.
(Moody's senior unsecured rating Baa2; stable outlook) under a 21-year
triple net lease that is coterminous with the loan's maturity (August
2014). The loan is interest only for its entire term. Moody's
credit estimate and stressed DSCR are A3 and 1.58X, respectively,
compared to A3 and 0.97X at last review.
The second loan with a credit estimate is the Westfield Shoppingtown Portfolio
Loan ($65.0 million -- 9.5% of the pool),
which represents a 34% pari passu interest in a first mortgage
loan. The loan is secured by the borrower's interest in two regional
malls located in California. The loan sponsor is Westfield America,
Inc., a publicly traded REIT. Westfield Shoppingtown
Galleria at Roseville Mall is a 1.0 million SF center anchored
by Macy's, Nordstrom, J.C. Penney and Sears.
Westfield Shoppingtown Main Place Mall is a 1.1 million SF center
that is anchored by Macy's, Nordstrom and J.C. Penney.
Moody's credit estimate and stressed DSCR are Aa1 and 2.24X,
respectively, compared to Aa2 and 1.94X at last review.
The third loan with a credit estimate is the Chandler Fashion Center Loan
($47.3 million -- 6.9% of the pool),
which represents a 49% pari passu interest in a first mortgage
loan. The loan is secured by the borrower's interest in a 1.3
million SF super-regional mall located approximately 18 miles southeast
of downtown Phoenix in Chandler, Arizona. The center is anchored
by Dillard's, Macy's, Nordstrom and Sears. The center
was 99% leased as of July 2010, the same as at last review.
The loan sponsor is the Macerich Company, a publicly traded REIT.
Moody's credit estimate and stressed DSCR are Aa1 and 2.46X,
respectively, compared to Aa1 and 2.43X at last review.
The fourth loan with a credit estimate is the 1669 Collins Avenue Loan
($23.9 million -- 3.5% of the pool),
which is secured by the leased fee interest in the land under the Ritz-Carlton
Hotel in South Beach, Florida. Moody's credit estimate
and stressed DSCR are Aa1 and 0.91X, respectively,
compared to Aa1 and .89X at last review.
The top three performing conduit loans represent 15% of the pool.
The largest conduit loan is the Gateway Center BJ's Loan ($40.4
million -- 5.9% of the pool), which
is secured by a 152,500 SF portion of a 640,000 SF community
center located in Brooklyn, New York. The collateral is 100%
leased to BJ's Wholesale Club (85% of the gross leasable area (GLA);
lease expiration 2027) and several restaurant tenants. The property
is shadow anchored by Home Depot, Target, Bed Bath & Beyond
and Marshall's. Moody's LTV and stressed DSCR are 81% and
1.23X, respectively, compared to 84% and 1.19X
at last review.
The second largest loan is the Palladium at Birmingham Loan ($34.8
million -- 5.1% of the pool), which is secured
by two retail properties located in Birmingham, Michigan.
The properties total 150,000 SF. Palladium Retail is a 124,500
SF entertainment/retail center. Willits Retail consists of three
ground-floor condominium units that total 25,400 SF.
The properties were 78% leased as of June 2010 compared to 83%
at last review. Performance has declined since last review due
to decreased occupancy. This loan is currently on the master servicer's
watchlist for low DSCR. Moody's LTV and stressed DSCR 131%
and 0.76X, respectively, compared to 118% and
0.85Xat last review.
The third largest loan is the Redland Center Loan ($25.0
million -- 3.6% of the pool), which is secured
by a 134,000 SF office condominium located in Rockville, Maryland.
The property is 100% leased to the General Services Administration
(Department of Health and Human Services) through March 2013. Moody's
LTV and stressed DSCR 98% and 1.02X, respectively,
compared to 98% and 0.97X 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
Robert Gilbane
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 Nine CMBS Classes of COMM 2003-LNB1
