Approximately $448 million of Structured Securities Affected
New York, December 17, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of six classes
and affirmed five classes of Lehman Brothers Floating Rate Commercial
Mortgage Trust, Commercial Mortgage Pass-Through Certificates,
Series 2006-LLF C5. In addition, three non-pooled,
or rake classses were placed under review for possible downgrade.
Moody's rating action is as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Aug 17, 2006 Assigned Aaa (sf)
Cl. X-2, Affirmed at Aaa (sf); previously on
Aug 17, 2006 Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Jun 14,
2007 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aa3 (sf); previously on Mar 19,
2009 Downgraded to Aa3 (sf)
Cl. D, Affirmed at A2 (sf); previously on Mar 19,
2009 Downgraded to A2 (sf)
Cl. WSD, Downgraded to B3 (sf); previously on Mar 19,
2009 Downgraded to Ba3 (sf)
Cl. PR1-1, Downgraded to B2 (sf); previously
on Mar 19, 2009 Downgraded to Baa3 (sf)
Cl. PR1-2, Downgraded to B3 (sf); previously
on Mar 19, 2009 Downgraded to Ba1 (sf)
Cl. PR2, Downgraded to Ba3 (sf) and Placed Under Review for
Possible Downgrade; previously on Mar 19, 2009 Downgraded to
A3 (sf)
Cl. PR3-1, Downgraded to B1 (sf) and Placed Under
Review for Possible Downgrade; previously on Mar 19, 2009 Downgraded
to Baa3 (sf)
Cl. PR3-2, Downgraded to B2 (sf) and Placed Under
Review for Possible Downgrade; previously on Mar 19, 2009 Downgraded
to Ba1 (sf)
RATINGS RATIONALE
The downgrade of non-pooled or rake bonds are due to higher expected
losses for the trust resulting from anticipated losses and interest shortfalls.
The affirmation of the pooled classes 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.
The pool has paid down by 24% since Moody's last review,
benefiting the senior classes. Moody's does not rate pooled
classes E, F, G, H, J, K, and L which
provide additional credit support for the pooled classes.
Rake classes PR2, PR3-1 and PR3-2 were placed under
review for possible downgrade due to interest shortfalls and uncertainty
surrounding the outcome and timing of the resolution for the Praedium
Rental Portfolio II Loan and Praedium Rental Portfolio III Loan.
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 previous 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 these ratings were "Moody's Approach
to Rating Large Loan/Single Borrower Transactions" published in July 2000.
In addition, 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 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 19, 2009. The
previous full review was part of Moody's first quarter 2009 ratings sweep
and incorporated assumptions for capitalization rates and stressed cash
flows that were outlined in "Rating Methodology Update: US CMBS
Conduit and Fusion Review Prompted by Declining Property Values and Rising
Delinquencies" dated February 19, 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 December 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased to $699 million from
$922 million at last review. The Certificates are collateralized
by nine floating rate whole loans and senior interests in whole loans.
The loans range in size from 3% to 47% of the pooled balance,
with the top three loans representing 75% of the pool. All
of the loans have additional debt in the form of a non-pooled or
rake bond within the trust and/or B notes or mezzanine debt outside of
the trust. All of the loans mature over the next 12 month period.
The largest loan in the pool is secured by fee interests in Walt Disney
World Swan & Dolphin Loan ($320 million, or 47%
of the pooled balance plus a $10 million rake bond within the trust).
The two-hotel portfolio (2,267 guestrooms) is located in
Lake Buena Vista, FL, near Orlando. Orlando is a very
popular convention and group destination due to the presence of one of
the largest convention center in the country, theme parks and other
attractions and warm weather. The Walt Disney World Swan &
Dolphin Hotels have always been considered one of the premier destinations
for large groups. The sponsor is Tishman Speyer.
US Hotels suffered significant declines in operating performance during
the last two years. Particularly, high-end properties
that cater to corporate groups have been hard hit. However,
the lodging sector as a whole reached a turning point in late 2009/early
2010, and are showing signs of growth.
According to Smith Travel Research, Orlando's RevPAR in the
year-to-date period through October 2010 period was up only
2.1% from the same period in 2009, well below that
of the Top 25 Markets (average of 6.5%). However,
monthly year-over-year comparison shows a much brighter
picture. October 2010 RevPAR was up 13.8% from that
of October 2009. September 2010 RevPAR was up 17.1%
from that of September 2009. August 2010 RevPAR was up 11.0%
from that of August 2009. Based on the trend of the last three
months, we can gather that the recovery of Orlando market started
much later than some of the other MSAs in the US but is rebounding strongly.
For the first nine month period ending September 2010, the Walt
Disney World Swan & Dolphin Loan achieved a Net Cash Flow (NCF) of
$15 million, down 28% from $21 million achieved
in 2009. In 2009, the properties' combined NCF was
$28 million. Although the in-place cash flow is significantly
below its historical average, Moody's believes that the properties'
location, reputation and facilities provide a competitive asset
valuation that may not be represented by its current operating performance
statistics. Moody's weighted average LTV for the pooled portion
is 85%, including rakes is 88%. Moody's
current credit estimate for the pooled portion is B2. There is
additional debt outside of the trust.
The London NYC Loan ($130 million, or 19% of pooled
balance) is a 564-guestrrom luxury hotel property located in midtown
Manhattan. The sponsor is The Blackstone Group. The property's
Net Operating Income (NOI) for the nine month period ending September
2010 was $12.5 million, up 39% from $9.0
million achieved during the same time in 2009. RevPAR averaged
$303 during the year-to-date 2010 period compared
to $264 in the year-to-date 2009.
NYC lodging market is the strongest market in the country consistently
achieving the highest RevPAR; however, NYC hotels also suffered
one of the highest declines in operating performance during the last two
years. According to Smith Travel Research, NYC's RevPAR
in the year-to-date through October 2010 period was up 13.6%
from the same period in 2009, and recorded the highest growth rate
within the Top 25 MSAs as defined by Smith Travel Research. Luxury
and urban properties are showing particularly strong improvement compared
to other segments. There is additional debt in the form of mezzanine
outside the trust. Moody's LTV for the pooled portion is
74%, and including the mezzanine debt is 106%.
Moody's current credit estimate for the pooled portion is Ba2.
There are currently five loans totaling 25% of pooled balance in
special servicing. Sheraton Keauhou Bay Resort & Spa (8%
of pooled balance) has been in special servicing since September 2008.
The property has been on the market since January of this year,
and currently the special servicer is negotiating a sale. The new
appraisal (May 2010) values the property at $33.2 million.
National Conference Center Loan (5% of pooled balance) transferred
to special servicing in July 2010 due to imminent maturity default.
The special servicer is still in negotiations with the borrower.
The Praedium Rental Portfolio I (3% of pooled balance) has been
modified and extended, and pending return to master servicer.
Praedium Rental Portfolio II (4% of pooled balance) and Praedium
Rental Portfolio III (3% of pooled balance) were transferred to
special servicing in September 2010 due to imminent default. In
2009, the Praedium Rental Portfolio II achieved an occupancy of
88% and an NOI of $2.2 million. According
to the special servicer, the estimated full year 2010 occupancy
is expected to increase to 90% with an NOI of $2.1
million. In 2009, the Praedium Rental Portfolio III achieved
an occupancy of 96% and an NOI of $2.1 million.
According to the special servicer, the estimated full year 2010
operating performance is expected to be just slightly lower than those
of 2009. The special servicer is still in discussions with the
borrower.
Rake classes associated with Praedium Rental Portfolio II Loan and Praedium
Rental Portfolio III Loan were placed under review for possible downgrade
due to interest shortfalls and uncertainty surrounding the outcome and
timing of the resolution. Rake classes associated with the Praedium
Rental Portfolio I have not been placed under review for possible downgrade
as the loan was extended to August 8, 2011, and the borrower
will pay for all costs associated with the modification including legal
and special servicing fees.
The pool has incurred $81 in cumulative bond losses, and
$402,332 in interest shortfalls affecting popled Class L.
An additional interest shortfalls totaling $37,670 have been
incurred by rake classes PR1-1, PR1-2, PR2,
PR3-1 and PR3-2.
Moody's weighted average pooled LTV ratio is 88% and Moody's weighted
average stressed debt service coverage ratio (DSCR) for pooled trust debt
is 0.92X. Moody's weighted average first mortgage
LTV is 93% and Moody's weighted average stressed debt service
coverage ratio (DSCR) for first mortgage debt is 0.87X.
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, and confidential and proprietary Moody's Investors
Service 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
Eun Jee Park
VP - Senior Credit Officer
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 Six and Affirms Five CMBS Classes of LBFRC 2006-LLF C5 and Places Three Classes on Review for Possible Downgrade
