Approximately $814.9 Million of Structured Securities Affected
New York, April 06, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of four classes
and affirmed 16 classes of LB-UBS Commercial Mortgage Trust 2002-C2,
Commercial Mortgage Pass-Through Certificates, Series 2002-C2
as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on
Jul 9, 2002 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Jul 9, 2002 Definitive Rating Assigned Aaa (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Jul 9, 2002 Definitive Rating Assigned Aaa (sf)
Cl. X-D, Affirmed at Aaa (sf); previously on
Jul 9, 2002 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Mar 9,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Mar 9,
2006 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on May 2,
2007 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aaa (sf); previously on Nov 8,
2007 Upgraded to Aaa (sf)
Cl. F, Affirmed at Aa3 (sf); previously on Nov 8,
2007 Upgraded to Aa3 (sf)
Cl. G, Affirmed at A1 (sf); previously on Nov 8,
2007 Upgraded to A1 (sf)
Cl. H, Affirmed at A2 (sf); previously on Nov 8,
2007 Upgraded to A2 (sf)
Cl. J, Affirmed at Baa1 (sf); previously on Nov 8,
2007 Upgraded to Baa1 (sf)
Cl. K, Affirmed at Baa3 (sf); previously on Jul 9,
2002 Definitive Rating Assigned Baa3 (sf)
Cl. L, Affirmed at Ba1 (sf); previously on Jul 9,
2002 Definitive Rating Assigned Ba1 (sf)
Cl. M, Downgraded to B1 (sf); previously on Nov 4,
2010 Downgraded to Ba3 (sf)
Cl. N, Downgraded to B3 (sf); previously on Nov 4,
2010 Downgraded to B2 (sf)
Cl. P, Downgraded to Caa1 (sf); previously on Nov 4,
2010 Downgraded to B3 (sf)
Cl. Q, Downgraded to Caa3 (sf); previously on Nov 4,
2010 Downgraded to Caa2 (sf)
Cl. S, Affirmed at C (sf); previously on Nov 4,
2010 Downgraded to C (sf)
Cl. T, Affirmed at C (sf); previously on Nov 4,
2010 Downgraded to C (sf)
RATINGS RATIONALE
The downgrades are due to increased interest shortfalls. Recently
interest shortfalls spiked from Class P to Class L. The increase
was caused by the recovery of servicer advances from a loan that was liquidated
in December 2010 (Oak Creek Apartments Loan; $4.1 million).
The sales proceeds were not sufficient to recover all of the servicer's
outstanding advances. The servicer has recouped all of its advances
on this loan over the past three months and it is anticipated that cumulative
interest shortfalls will be less starting with the April remittance payment.
We anticipate that Class L will recover accrued but unpaid interest within
the next two months and Classes M and N will recover unpaid interest within
four to eight months, assuming that there are no further reductions
in the amount of interest available to certificate holders. However,
Moody's anticipates that Classes P, Q and S will continue
to experience interest shortfalls for an indeterminate period.
Interest shortfalls are caused by special servicing fees, including
workout and liquidation fees, appraisal subordinate entitlement
reductions (ASARs) and extraordinary trust expenses.
The 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.
Moody's rating action reflects a cumulative base expected loss of
1.9% of the current balance. At last review,
Moody's cumulative base expected loss was 2.3%.
Moody's stressed scenario loss is 4.4% 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 sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011. The hotel and multifamily sectors are continuing
to show signs of recovery, while recovery in the office and retail
sectors will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions " published in April 2005,
and " CMBS: Moody's Approach to Rating Large Loan Transactions"
published in July 2000.
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 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 11
compared to 11 at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs also
the large loan/single borrower methodology. This methodology uses
the excel-based Large Loan Model v 8.0. The large
loan model derives credit enhancement levels based on an aggregation of
adjusted loan level proceeds derived from Moody's loan level LTV
ratios. Major adjustments to determining proceeds include leverage,
loan structure, property type, and sponsorship. These
aggregated proceeds are then further adjusted for any pooling benefits
associated with loan level diversity, other concentrations and correlations.
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 November 4, 2010.
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 March 17, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 32% to $818.9
million from $1.21 billion at securitization. The
Certificates are collateralized by 75 mortgage loans ranging in size from
less than 1% to 19% of the pool, with the top ten
non-defeased loans representing 57% of the pool.
The pool includes four loans with investment grade credit estimates,
representing 41% of the pool. Eighteen loans, representing
19% of the pool, have defeased and are collateralized with
U.S. Government securities. The pool faces significant
refinance risk as loans representing 81% of the current pool balance
mature within the next 24 months.
Twenty-three loans, representing 25% 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.
Eight loans have been liquidated from the pool, resulting in an
aggregate realized loss of $8.1 million (14% loss
severity overall). Four loans, representing 2.2%
of the pool, are currently in special servicing. The master
servicer has recognized an aggregate $4.7 million appraisal
reduction for four specially serviced loans. Moody's has
estimated an aggregate $7.5 million loss (41% expected
loss on average) for the specially serviced loans.
Moody's has assumed a high default probability for two poorly performing
loans representing 0.5% of the pool and has estimated a
$981,000 loss (25% expected loss based on a 50%
probability default) from these troubled loans.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 94% and 70% of the pool, respectively.
Excluding specially serviced and troubled loans, Moody's weighted
average LTV is 82%, essentially the same as at Moody's
prior review. Moody's net cash flow reflects a weighted average
haircut of 14% 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 1.28X and 1.34X, respectively,
compared to 1.27X and 1.31X 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.
The largest loan with a credit estimate is the Dadeland Mall Loan ($152.1
million -- 18.6%), which is secured by the borrower's
interest in a 1.4 million square foot super regional mall located
in Miami, Florida. The property is the dominant mall in the
region and is anchored by Macy's, Macy's Home Gallery & Kids,
J.C. Penney, Nordstrom and Saks Fifth Avenue.
The property was 98% leased as of December 2010, essentially
the same as at last review and securitization. Performance has
been very strong since securitization. Moody's current credit estimate
and stressed DSCR are Aaa and 2.19X, respectively,
compared to Aaa and 2.14X at last review.
The second loan with a credit estimate is the Square One Mall Loan ($83.9
million -- 10.3%), which is secured by the borrower's
interest in a 865,400 square foot regional mall located approximately
eight miles northeast of Boston in Saugus, Massachusetts.
The property is anchored by Sears, Macy's, T.J.Maxx
and Filene's Basement. The property was 95% leased as of
December 2010, compared to 92% at last review. Performance
has been stable. Moody's current credit estimate and stressed DSCR
are Baa1 and 1.65X, respectively, compared to Baa1
and 1.64X at last review.
The third loan with a credit estimate is the 250 Park Avenue Loan ($65.1
million - 7.9%), which is secured by a 448,000
square foot Class A office building located in New York City. The
property was 77% leased as of June 2010 compared to 100%
at securitization. The loan is on the servicer's watchlist
due to low occupancy. Moody's current credit estimate and stressed
DSCR are Aaa and 1.88X, respectively, compared to Aaa
and 1.86X at last review.
The fourth loan with a credit estimate is the 21 Chelsea Loan ($31.1
million - 3.8%), which is secured by a 209-unit
multifamily complex located in New York City. The property was
97% leased as of September 2010 compared to 98% at securitization.
Performance has been stable. Moody's current credit estimate and
stressed DSCR are A1 and 1.65X, respectively, compared
to A1 and 1.64X at last review.
The top three conduit loans represent 12% of the pool balance.
The largest loan is the 1750 Pennsylvania Avenue Loan ($44.9
million -- 5.5%), which is secured by a 259,000
square foot Class A office building located in Washington, D.C.
The property was 97% leased as of December 2010 compared to 98%
at securitization. The loan is on the servicer's watchlist
due to upcoming lease rollover. The property is over 70%
occupied by the US Government. Moody's LTV and stressed DSCR
are 81% and 1.24X, respectively, compared to
87% and 1.15X at last review.
The second largest loan is the Bank of America Tower Loan ($30.9
million - 3.1%), which is secured by a 299,700
square foot office building located in St. Petersburg, Florida.
The property was 85% leased as of September 2010 compared to 82%
at last review. However in December 2010 the Bank of America,
which leased 14% of the net rentable area (NRA), vacated
at the expiration of its lease. Moody's LTV and stressed
DSCR are 112% and 0.92X, respectively, compared
to 99% and 1.04X at last review.
The third largest loan is the White Flint Plaza Loan ($25.0
million -- 3.1%), which is secured by a 194,975
square foot community shopping center located in Rockville, Maryland.
The property was 94% leased as of December 2010 compared to 83%
at last review. Although, occupancy increased since last
review, performance has been stable. Moody's LTV and
stressed DSCR are 92% and 1.18X, respectively,
compared to 92% and 1.17X 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
Dariusz Surmacz
Asst Vice President - 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 Four and Affirms 16 CMBS Classes of LBUBS 2002-C2
