Approximately $830.8 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of four classes
and affirmed 20 classes of LB-UBS Commercial Mortgage Trust 2003-C3,
Commercial Mortgage Pass-Through Certificates, Series 2003-C3
as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on
Jun 30, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Jun 30, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Apr 20,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Apr 20,
2006 Upgraded to Aaa (sf)
Cl. D, Affirmed at Aaa (sf); previously on Jun 17,
2009 Upgraded to Aaa (sf)
Cl. E, Affirmed at Aa1 (sf); previously on Jun 17,
2009 Upgraded to Aa1 (sf)
Cl. F, Affirmed at Aa2 (sf); previously on Jun 17,
2009 Upgraded to Aa2 (sf)
Cl. G, Affirmed at A1 (sf); previously on Jun 17,
2009 Upgraded to A1 (sf)
Cl. H, Affirmed at A3 (sf); previously on Jun 17,
2009 Upgraded to A3 (sf)
Cl. J, Affirmed at Baa1 (sf); previously on Jun 17,
2009 Upgraded to Baa1 (sf)
Cl. K, Affirmed at Baa3 (sf); previously on Jun 30,
2003 Definitive Rating Assigned Baa3 (sf)
Cl. L, Affirmed at Ba1 (sf); previously on Jun 30,
2003 Definitive Rating Assigned Ba1 (sf)
Cl. M, Affirmed at Ba2 (sf); previously on Jun 30,
2003 Definitive Rating Assigned Ba2 (sf)
Cl. N, Affirmed at Ba3 (sf); previously on Jun 30,
2003 Definitive Rating Assigned Ba3 (sf)
Cl. P, Affirmed at B1 (sf); previously on Jun 30,
2003 Definitive Rating Assigned B1 (sf)
Cl. Q, Affirmed at B2 (sf); previously on Jun 30,
2003 Definitive Rating Assigned B2 (sf)
Cl. S, Downgraded to Caa1 (sf); previously on Jun 30,
2003 Definitive Rating Assigned B3 (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Jun 30, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-WC, Affirmed at Aaa (sf); previously on
Jun 30, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-MM1, Affirmed at Aaa (sf); previously on
Jun 30, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-MM2, Affirmed at Aaa (sf); previously on
Jun 30, 2003 Definitive Rating Assigned Aaa (sf)
Cl. MM-1, Downgraded to Caa1 (sf); previously
on Jun 17, 2009 Downgraded to B1 (sf)
Cl. MM-2, Downgraded to Caa2 (sf); previously
on Jun 17, 2009 Downgraded to B2 (sf)
Cl. MM-3, Downgraded to Caa3 (sf); previously
on Jun 17, 2009 Downgraded to B3 (sf)
RATINGS RATIONALE
The downgrade of one pooled class is due to higher expected losses for
the pool resulting from realized and anticipated losses from troubled
loans. The downgrades of three non-pooled, or rake
classes, are due to the decline in performance of the Monroeville
Mall, which is the collateral for the B note supporting the rake
classes. The affirmations are due to key parameters, including
Moody's loan to value (LTV) ratio, and Moody's stressed
debt service coverage ratio (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
1.7% of the current balance. At last review,
Moody's cumulative base expected loss was 1.5%.
Moody's stressed scenario loss is 4.6% 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.
Due to the high level of credit subordination and defeasance, it
is unlikely that investment grade classes would be downgraded even if
losses are higher than Moody's expected base.
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 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 methodologies used in this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005,
and "Moody's Approach to Rating Large Loan/Single Borrower Transactions"
published in July 2000. These methodologies are available on Moody's
website at www.moodys.com.
In addition to methodologies and research, 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 and the CMBS Large Loan Model v 8.0. 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 pay down 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 underlying ratings 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 underlying rating 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 12
compared to 25 at Moody's prior review.
In cases where the Herf falls below 20, Moody's employs 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 June 17, 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 January 15, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 38% to $846.0
million from $1.35 billion at securitization. The
Certificates are collateralized by 82 mortgage loans ranging in size from
less than 1% to 14% of the pool, with the top ten
loans representing 67% of the pool. The pool includes three
loans, representing 40% of the pool, with investment
grade credits estimates. Eleven loans, representing 10%
of the pool, have defeased and are collateralized with U.S.
Government securities.
Sixteen loans, representing 30% 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 loan have been liquidated from the pool since securitization,
resulting in a $3.17 million loss (59% loss severity).
The majority of the loss to pool was generated from the liquidation of
the Stonehedge Apartment Loan in June 2010. Currently, there
are two loans in special servicing, representing 0.4%
of the pool. Moody's has estimated an aggregate $2.0
million loss for the specially serviced loans (56% overall expected
loss).
Moody's has assumed a high default probability for four poorly performing
loans representing 1.5% of the pool and has estimated an
aggregate $2.4 million loss (20% expected loss based
on a 50% probability default) for the troubled loans.
Moody's was provided with full year 2009 and partial 2010 operating
results for 88% and 87%, respectively, for the
non-defeased pool. Excluding specially serviced and troubled
loans, Moody's weighted average conduit LTV is 86%
compared to 91% at last review. Moody's net cash flow
reflects a weighted average haircut of 15% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 9.5%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.33X and 1.23X, respectively,
compared to 1.51X and 1.39X 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 Westfield Shoppingtown
West County Loan ($128.9 million -- 16% of the
pool), which is secured by the borrower's interest in a 1.3
million square foot regional mall located in Des Peres, Missouri.
The center is also encumbered by a $19.8 million B-Note
that is held outside the trust. The mall is anchored by Macy's,
J.C. Penney and Nordstrom. As of September 2010,
the center was 96% leased compared 99% at last review.
Annualized September 2010 net operating income (NOI) was 8% lower
than in 2008. This was partially offset by a 4% increase
in amortization since last review. The sponsor is CBL & Associates.
Moody's current credit estimate and stressed DSCR are A1 and 1.45X,
respectively, essentially the same as at last review.
The second largest loan with a credit estimate is the Polaris Fashion
Place Loan ($106.5 million -- 14% of the pool),
which is secured by the borrower's interest in a 1.6 million square
foot regional mall located in Columbus, Ohio. The property
is also encumbered by a $24.8 million B-Note that
is held outside the trust The mall is anchored by Sears, Macy's,
J.C. Penney, Saks Fifth Avenue, Van Maur and
The Great Indoors. As of October 2010, the in-line
mall was 98% leased compared to 99% at last review.
Between 2008 and 2009, the property's performance declined
due to a 5% decrease in base revenues and a 7% increase
in operating expenses. This was partially offset by a 4%
increase in amortization since last review. The sponsor is Glimcher
Realty. Moody's current credit estimate and stressed DSCR are A2
and 1.53X, essentially the same as at last review.
The third largest loan with a credit estimate is the Pembroke Lakes Mall
Loan ($97.4 million -- 12% of the pool),
which is secured by the borrower's interest in a 1.1 million square
foot regional mall located in Pembroke Pines, Florida. The
property is also encumbered by a $30.0 million B-Note
that is held outside the trust. The sponsor is General Growth Properties
(GGP). This loan was not included in GGP's Chapter 11 bankruptcy
filing in April 2009. The mall is anchored by Macy's, J.C.
Penney, Dillard's, Sears, Dillard's Men, and Macy's
Home Store. As of September 2010, the in-line space
was 91% leased compared to 99% at last review. At
last review, Moody's analysis reflected a stressed cash flow due
to concerns about the retail environment and the GGP bankruptcy filing.
However, performance has been stable. Moody's current credit
estimate and stressed DSCR are Aaa and 2.10X, respectively,
compared to Aa1 and 2.00X at last review.
The top three non-defeased conduit loans represent 21% of
the pool. The largest conduit loan is the Monroeville Mall Loan
($96.8 million -- 12% of pool), which
is secured by the borrower's interest in a 1.3 million square foot
regional mall located in Monroeville, Pennsylvania. The property
is also encumbered by a $16.7 million B Note that is held
within the trust and serves as security for non-pooled Classes
MM-1, MM-2, MM-3, M-MM1
and X-MM2. The mall is anchored by Macy's and J.C.
Penney. Since our last review, the former Boscov's anchor
space, which is not part of the collateral, has remained vacant.
As of November 2011, the in-line occupancy was 94%
compared to 90% at last review. Property performance has
declined since 2008 due to a 28% decrease in base revenues,
percentage rents and recoveries. The sponsor is CBL & Associates.
Moody's LTV and stressed DSCR for the A note are 92% and 1.10X,
respectively, compared to 83% and 1.24X at last review.
The second largest conduit loan is the Broadcasting Square Loan ($44.8
million -- 5.4% of the pool), which is secured
by a 467,000 square foot power center located in Reading,
Pennsylvania. The largest tenants are Weis Market, Dick's
Clothing & Sports, and Bed Bath & Beyond. As of September
2009, the center was 99% leased compared to 100% at
last review. Moody's LTV and stressed DSCR are 77% and 1.41X,
respectively, compared to 83% and 1.3X at last review.
The third largest conduit loan is the LIRA Apartments Loan ($28.4
million -- 3.4% of the pool), which is secured
by a 152-unit apartment building located in New York City.
The property has maintained near 100% occupancy since securitization.
The loan benefits from the property's location in the strong NYC multi-family
market and amortization. Moody's LTV and stressed DSCR are 62%
and 1.40X, respectively, compared to 64% and
1.35X 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 , 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
Juan Acosta
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 20 CMBS Classes of LB-UBS 2003-C3
