Approximately $1.21 Billion of Structured Securities Affected
New York, December 10, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of nine classes,
confirmed one class and affirmed 12 classes of Wachovia Bank Commercial
Mortgage Trust, Commercial Mortgage Pass-Through Certificates,
Series 2005-C18 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Jun 6, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Jun 6, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-PB, Affirmed at Aaa (sf); previously on
Jun 6, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Jun 6, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-1A, Affirmed at Aaa (sf); previously on
Jun 6, 2005 Definitive Rating Assigned Aaa (sf)
Cl. A-J-1, Confirmed at Aaa (sf); previously
on Oct 28, 2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. A-J-2, Downgraded to A3 (sf); previously
on Oct 28, 2010 Aa3 (sf) Placed Under Review for Possible Downgrade
Cl. B, Downgraded to Baa3 (sf); previously on Oct 28,
2010 A2 (sf) Placed Under Review for Possible Downgrade
Cl. C, Downgraded to Ba2 (sf); previously on Oct 28,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to B3 (sf); previously on Oct 28,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to Caa2 (sf); previously on Oct 28,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Caa3 (sf); previously on Oct 28,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to Ca (sf); previously on Oct 28,
2010 B2 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to C (sf); previously on Oct 28,
2010 Caa2 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to C (sf); previously on Oct 28,
2010 Ca (sf) Placed Under Review for Possible Downgrade
Cl. K, Affirmed at C (sf); previously on Oct 15,
2009 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on Oct 15,
2009 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Oct 15,
2009 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Oct 15,
2009 Downgraded to C (sf)
Cl. O, Affirmed at C (sf); previously on Oct 15,
2009 Downgraded to C (sf)
Cl. X-P, Affirmed at Aaa (sf); previously on
Jun 6, 2005 Definitive Rating Assigned Aaa (sf)
Cl. X-C, Affirmed at Aaa (sf); previously on
Jun 6, 2005 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, interest shortfalls and concerns about loans approaching
maturity in an adverse environment. Six loans, representing
10% of the pool, have either matured or mature within the
next 36 months and have a Moody's stressed debt service coverage ratio
(DSCR) less than 1.0X.
The confirmation and 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.
On October 28, 2010 Moody's placed ten classes on review for possible
downgrade. This action concludes our review.
Moody's rating action reflects a cumulative base expected loss of
7.6% of the current balance. Moody's stressed
scenario loss is 14.7% 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 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/Single Borrower Transactions", published in July
2000.
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
as well as the excel-based CMBS Large Loan Model v. 8.0
which is used for Large Loan 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 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 21 at Moody's prior review.
In cases where the Herf falls below 20, Moody's also employs the
large loan/single borrower methodology. This methodology uses the
excel-based Large Loan Model v 8.0 and then reconciles and
weights the results from the two models in formulating a rating recommendation.
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 October 15, 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 November 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 13% to $1.23
billion from $1.41 billion at securitization. The
Certificates are collateralized by 58 mortgage loans ranging in size from
less than 1% to 17% of the pool, with the top ten
loans representing 53% of the pool. There is one loan,
representing 2.2% of the pool, with an investment
grade credit estimate. Four loans, representing 13.6%
of the pool, have defeased and are collateralized with U.S.
Government securities, the same as at last review.
Eight loans, representing 13% 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 five of the watchlisted loans as
well as two additional loans that mature within the next 24 months and
have a Moody's stressed DSCR less than 1.0X. Moody's
has estimated a $24.9 million loss (20% expected
loss based on a 50% default probability) from these troubled loans.
The pool has incurred a $5.4 million realized loss due to
a loan modification of the Fall Creek Harbour Shopping Center Loan.
The loan was originally $7.5 million and was modified with
a principal write-off, assumed for $2.6 million
and is currently still in the pool. Nine loans, representing
18% of the pool, are currently in special servicing.
The largest specially serviced loan is the Park Place II Loan ($92.2
million -- 5.8% of the pool), which is secured
by a 275,000 square foot (SF) mixed-use office and retail
complex located in Irvine, California. This loan was transferred
to special servicing in August 2009 after the loan's sponsor, Maguire,
announced that they would no longer fund cash shortfalls associated with
this loan. The property was 83% leased as of October 2010.
The loan was assumed and restructured in July 2010 with the new borrower
making a $4 million principal pay down and assuming an $84
million A-note and a $10.2 million B-note.
The second largest specially serviced loan is the Happy Valley Towne Center
Loan ($54.3 million -- 4.4% of the pool),
which is secured by a 680,000 SF shopping center located in Phoenix,
Arizona. The shopping center is anchored by Wal-Mart,
Lowe's and Sports Chalet. As of October 2010, the property
was 93% leased compared to 91% at last review. The
loan was transferred to special servicing in September 2010 due to imminent
default. Performance has weakened due to increased vacancy and
increased operating expenses.
The third largest specially serviced loan is the Cypress Lake at Stonebriar
Loan ($29.7 million -- 2.4% of the pool),
which is secured by a 472-unit multifamily complex located in Frisco,
Texas. The loan was transferred to special servicing April 2010
due to imminent maturity default. The loan has been extended through
May 2013 and is pending return to the master servicer.
The remaining six specially serviced loans are secured by a mix of property
types. The master servicer has recognized an aggregate $14.9
million appraisal reduction for four of the remaining specially serviced
loans. Moody's estimates an aggregate loss of approximately $51.2
million (28% expected loss on average) for eight of the specially
serviced loans.
Based on the most recent remittance statement, Classes H through
P have experienced cumulative interest shortfalls totaling $2.4
million. Moody's anticipates that the pool will continue
to experience interest shortfalls because of the high exposure to specially
serviced loans. Interest shortfalls are caused by special servicing
fees, including workout and liquidation fees, appraisal subordinate
entitlement reductions (ASERs) and extraordinary trust expenses.
Moody's was provided with full year 2009 operating results for 83%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 99% compared to 118%
at last review. Moody's net cash flow reflects a weighted
average haircut of 10% 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 1.41X and 1.06X, respectively,
compared to 1.34X and 0.93X 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 loan with a credit estimate is the 2700 Broadway Loan ($27.5
million -- 2.2% of the pool), which is secured
by a 25,000 SF condominium interest in the retail portion of a mixed-use
building located in New York City. The condo unit is 100%
leased to the Trustees of Columbia University through October 2054.
Moody's current credit estimate is A2, the same as at last review.
The top three performing conduit loans represent 29% of the pool
balance. The largest loan is the One & Two International Place
Loan ($203.9 million -- 16.6% of the
pool), which represents a 50% pari passu interest in a first
mortgage loan. The loan is secured by two Class A office towers,
totaling 1.9 million SF located in Boston, Massachusetts.
The property was 92% leased as of December 2009 compared to 94%
at last review. The lease for the property's largest tenant,
Ropes & Gray, which occupies 19% of the net rentable
area (NRA), expires in December 2010. Performance has declined
since last review due to a decline in occupancy and an increase in operating
expenses. Moody's LTV and stressed DSCR are 83% and 1.11X,
respectively, compared to 81% and 1.13X at last review.
The second largest loan is the Kadima Medical Office Pool Loan ($109.8
million -- 9% of the pool), which is secured by 16 medical
office buildings totaling 779,000 SF. The properties are
located in eight states with the largest concentration in Florida (8 properties).
The portfolio was 91% leased as of January 2010 compared to 89%
at last review. Property performance has been stable and the loan
has amortized 10% since last review. Moody's LTV and stressed
DSCR are 111% and 1.00X, respectively, compared
to 129% and 0.86X at last review.
The third largest loan is the 590 Fifth Avenue Loan ($39.1
million -- 3.2% of the pool), which is secured
by a 98,000 SF office building in New York City. The property
was 79% leased as of June 2010 compared to 81% at last review.
At last review, Moody's valuation reflected concerns about
potential increased vacancy due to the lease expiration of Strategic Insight
Consulting (15% of the NRA) at the end of 2009. However,
a 15-year lease with Health Insurance Plan of New York (19%
of the NRA) was executed in November 2009. The tenant was receiving
free rent through November 2010, so this additional income was not
reflected in the 2009 net operating income. Moody's current
valuation includes this additional future income. Moody's LTV and
stressed DSCR are 124% and 0.87X, respectively,
compared to 151% and 0.72X 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
Christie Edwards
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Keith Banhazl
Vice President - Senior Analyst
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 Nine, Confirms One and Affirms 12 CMBS Classes of WBCMT 2005-C18
