Approximately $843.3 Million of Structured Securities Affected
New York, February 16, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of four classes
and affirmed eleven classes of LB-UBS Commercial Mortgage Trust
2003-C8, Commercial Mortgage Pass-Through Certificates,
Series 2003-C8 as follows:
Cl. A-3, Affirmed at Aaa (sf); previously on
Dec 4, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Dec 4, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Dec 4, 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 Aa1 (sf); previously on Mar 26,
2008 Upgraded to Aa1 (sf)
Cl. E, Affirmed at Aa3 (sf); previously on Mar 26,
2008 Upgraded to Aa3 (sf)
Cl. F, Affirmed at A1 (sf); previously on Mar 26,
2008 Upgraded to A1 (sf)
Cl. G, Affirmed at A3 (sf); previously on Dec 4,
2003 Definitive Rating Assigned A3 (sf)
Cl. H, Affirmed at Baa1 (sf); previously on Dec 4,
2003 Definitive Rating Assigned Baa1 (sf)
Cl. J, Affirmed at Baa2 (sf); previously on Dec 4,
2003 Definitive Rating Assigned Baa2 (sf)
Cl. K, Downgraded to Ba1 (sf); previously on Dec 4,
2003 Definitive Rating Assigned Baa3 (sf)
Cl. L, Downgraded to Ba3 (sf); previously on Dec 4,
2003 Definitive Rating Assigned Ba1 (sf)
Cl. M, Downgraded to B2 (sf); previously on Dec 4,
2003 Definitive Rating Assigned Ba2 (sf)
Cl. N, Downgraded to Caa1 (sf); previously on Dec 4,
2003 Definitive Rating Assigned Ba3 (sf)
RATINGS RATIONALE
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from troubled loans. 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 existing rating.
Moody's rating action reflects a cumulative base expected loss of
4.1% of the current balance. At last review,
Moody's cumulative base expected loss was 1.3%.
Moody's stressed scenario loss is 8.5% 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.
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 19
compared to 28 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 March 26, 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 January 18, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 38% to $868.3
million from $1.40 billion at securitization. The
Certificates are collateralized by 74 mortgage loans ranging in size from
less than 1% to 18% of the pool, with the top ten
loans representing 60% of the pool. The pool includes four
loans, representing 46% of the pool, with investment
grade credits estimates. Thirteen loans representing 13%
of the pool have defeased and are collateralized with U.S.
Government securities.
Fourteen loans, representing 7% 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.
Six loans have been liquidated from the pool since securitization,
resulting in a $4.7 million loss (15% loss severity).
Eight loans, representing 7% of the pool, are currently
in special servicing. The largest specially serviced loan is the
Milestone Hotel Portfolio Loan (3% of the pool). The loan
is secured by four hotel properties located in three states. The
loan transferred into special servicing in September 2010 due to maturity
default. Moody's has estimated an aggregate $20.0
million loss for the specially serviced loans (32% expected loss
on average).
Moody's has assumed a high default probability for eight poorly
performing loans representing 3% of the pool and has estimated
an aggregate $5.8 million loss (20% expected loss
based on a 66% probability default) for the troubled 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 88% compared to 90%
at last review. Moody's net cash flow reflects a weighted
average haircut of 11% to the most recently available net operating
income. Moody's value reflects a weighted average capitalization
rate of 9.2%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.36X and 1.16X, respectively,
compared to 1.50X and 1.18X 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 The Grove Loan ($156.7
million -- 18.0%), which is secured by a 583,000
square foot open-air retail center located in Los Angeles.
Major tenants include Nordstroms and Pacific Theaters. The property
was 99% leased as of September 2010 compared with 100% at
last review. Moody's credit estimate and stressed DSCR are
Aa2 and 1.81X, respectively, compared to Aa2 and 1.55X
at last review.
The second largest loan with a credit estimate is the 114 West 47th Street
Loan ($102.5 million -- 11.8%),
which is secured by a 597,000 square foot office building located
in the Times Square submarket of New York City. The largest tenant
is the U.S. Trust Company (82% of the NRA; lease
expiration November 2014). U.S. Trust Company is
currently a part of Bank of America. The property was 98%
leased as of June 2010, the same as at last review. Moody's
current credit estimate and stressed DSCR are Aa2 and 1.81X,
respectively, compared to Aa2 and 1.55X at last review.
The third largest loan with a credit estimate is the Westfield Shoppingtown
South County Loan ($75.7 million -- 8.7%),
which is secured by the borrower's interest in a 1 million square
foot retail center located in St. Louis, Missouri.
The property was 98% leased as of September 2010 compared with
97% at last review. The center is anchored by Macy's,
Sears, J.C. Penney and Dillard's. Moody's current
credit estimate and stressed DSCR are Baa1 and 1.43X, respectively,
compared to Baa1 and 1.39X at last review.
The fourth largest loan with a credit estimate is the Liberty Tree Mall
Loan ($35.0 million -- 4.0%), which
is secured the borrower's interest in a 857,000 square foot retail
center located in Danvers, Massachusetts. The property is
92% leased compared with 95% at last review. Moody's
current credit estimate and stressed DSCR are Aa2 and 2.03X,
respectively, compared to Aa1 and 2.13X at last review.
The top three performing conduit loans represent 11% of the pool
balance. The largest loan is the Dartmouth Mall Loan ($61.1
million -- 7.0% of the pool), which represents
the borrower's interest in the 672,000 square foot regional
mall located in Dartmouth, Massachusetts. The mall is anchored
by Filene's, Sears and J.C. Penney. The
in-line shops were 94% leased as of September 2010 compared
to 93% at last review. The property's net operating
income has declined since last review. Moody's LTV and stressed
DSCR are 97% and 0.98X, respectively, compared
to 85% and 1.12X at last review.
The second largest conduit loan is the Centre at Westbank Loan ($19.1
million -- 2.2%), which is secured by a 182,000
square foot retail center located in Harvey, Louisiana. The
property was 93% leased as of September 2010 compared to 100%
at last review. Moody's LTV and stressed DSCR are 92% and
1.05X, respectively, compared to 87% and 1.11X
at last review.
The third largest conduit loan is the Oceanview Village Shopping Center
Loan ($18.1 million -- 2.1%), which
is secured by a 99,000 square foot retail center located in San
Francisco, California. The property in anchored by Oceanview
Market, which is subleasing from Albertson's. The property
is 93% leased as of September 2010 compared with 94% at
last review. Moody's LTV and stressed DSCR are 95% and 1.01X,
respectively, compared to 94% and 1.02X 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 purposes 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
Seth Anspach
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.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Downgrades Four and Affirms Eleven CMBS Classes of LBUBS 2003-C8
