Approximately $725.0 Million of Structured Securities Affected
New York, October 13, 2010 -- Moody's Investors Service (Moody's) downgraded the ratings of ten classes
and affirmed three classes of Banc of America Commercial Mortgage Inc.,
Commercial Mortgage Pass-Through Certificates, Series 2002-PB2
Cl. A-4, Affirmed at Aaa (sf); previously on
May 22, 2002 Definitive Rating Assigned Aaa (sf)
Cl. XC, Affirmed at Aaa (sf); previously on May 22,
2002 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Feb 1,
2007 Upgraded to Aaa (sf)
Cl. C, Downgraded to Aa1 (sf); previously on Sep 2,
2010 Aaa (sf) Placed Under Review for Possible Downgrade
Cl. D, Downgraded to Aa3 (sf); previously on Sep 2,
2010 Aa2 (sf) Placed Under Review for Possible Downgrade
Cl. E, Downgraded to A3 (sf); previously on Sep 2,
2010 A1 (sf) Placed Under Review for Possible Downgrade
Cl. F, Downgraded to Baa3 (sf); previously on Sep 2,
2010 A3 (sf) Placed Under Review for Possible Downgrade
Cl. G, Downgraded to B1 (sf); previously on Sep 2,
2010 Baa1 (sf) Placed Under Review for Possible Downgrade
Cl. H, Downgraded to Caa1 (sf); previously on Sep 2,
2010 Baa2 (sf) Placed Under Review for Possible Downgrade
Cl. J, Downgraded to Caa2 (sf); previously on Sep 2,
2010 Baa3 (sf) Placed Under Review for Possible Downgrade
Cl. K, Downgraded to Ca (sf); previously on Sep 2,
2010 Ba1 (sf) Placed Under Review for Possible Downgrade
Cl. L, Downgraded to C (sf); previously on Sep 2,
2010 Ba3 (sf) Placed Under Review for Possible Downgrade
Cl. M, Downgraded to C (sf); previously on Sep 2,
2010 B1 (sf) Placed Under Review for Possible Downgrade
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans and concerns about loans approaching maturity in an adverse environment.
Seventy-five loans, representing 77% of the pool,
mature within the next 36 months. Nineteen of these loans,
representing 29% of the pool, have a Moody's stressed
debt service coverage (DSCR) less than 1.0X.
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 the current ratings.
On September 2, 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
13.0% of the current balance. At last review,
Moody's cumulative base expected loss was 2.5%.
Moody's stressed scenario loss is 15.5% 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
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 methodology used in rating Banc of America Commercial Mortgage
Inc., Commercial Mortgage Pass-Through Certificates,
Series 2002-PB2 was CMBS: "Moody's Approach to Rating
Fusion Transactions" rating methodology published in April 2005.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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. 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 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 May 29, 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
As of the September 13, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 33% to $754.4
million from $1.1 billion at securitization. The
Certificates are collateralized by 90 mortgage loans ranging in size from
less than 1% to 10% of the pool, with the top ten
loans representing 39% of the pool. Twenty loans,
representing 22% of the pool, have defeased and are collateralized
with U.S. Government securities. Defeasance at last
review represented 23% of the pool. The pool includes one
loan, representing 5.3% of the pool, with an
investment grade credit estimate.
Nineteen loans, representing 24% 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
Ten loans have been liquidated from the pool, resulting in an aggregate
realized loss of $21.2 million (31% loss severity
on average). Nine loans, representing 13% of the pool,
are currently in special servicing. The largest specially serviced
loan is the 880 Troy Corporate Center Loan ($28.1 million
-- 3.7% of the pool), which is secured by a 186,565
square foot office building located in Troy, Michigan. The
loan was transferred to special servicing in January 2010 for imminent
default due to a the ability of the sole tenant to terminate the lease
effective January 2010. The tenant has not yet terminated the lease
and the loan is current. The remaining eight specially serviced
loans are secured by a mix of property types. Moody's has
estimated an aggregate $48 million loss (48% expected loss
on average) for the specially serviced loans.
Moody's has assumed a high default probability for ten poorly performing
loans representing 18% of the pool and has estimated a $43.2
million loss (32% expected loss based on a 63% probability
default) from these troubled loan. Moody's rating action
recognizes potential uncertainty around the timing and magnitude of losses
from these troubled loans.
Moody's was provided with full year 2009 operating results for 88%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 73% compared to 83%
at Moody's prior review. Moody's net cash flow reflects
a weighted average haircut of 12.4% to the most recently
available net operating income. Moody's value reflects a
weighted average capitalization rate of 9.1%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.55X and 1.59X, respectively,
compared to 1.25X and 1.21X 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.
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 30,
essentially the same as Moody's prior review.
The loan with the credit estimate is the Town Center East Loan ($40.2
million -- 5.3% of the pool), which is secured
by the fee interest in six land parcels in Foster City, California.
The parcels are located in Metro Center, a 100 acre mixed use development
containing office, retail, residential and hotel. The
parcels are improved with 676,000 square feet of Class A office
space and 98,700 square feet of retail space. All of the
parcels are subject to long-term ground leases. Moody's
current credit estimate and stressed DSCR are A2 and 1.08X,
respectively, compared to A2 and 1.10X at last review.
The top three performing conduit loans represent 17% of the pool
balance. The largest loan is the Regency Square Loan ($73.2
million -- 9.7% of the pool), which is secured
by a retail center located in Richmond, VA. The center is
anchored by Macy's and XXI Forever. The property was 83%
leased as of May 2010 compared to 100% at last review. In-line
tenant sales have declined to $248 PSF as of December 2009 compared
to $451 at securitization. The loan matures in November,
2011. Due to the decline in performance as well as the approaching
loan maturity, Moody's considers that this loan has a high
probability of default and has included this loan with other troubled
loans. Moody's LTV and stressed DSCR are 145% and
0.69X, respectively, compared to 105% and 0.96X
at last review.
The second largest loan is the 84 William Street Loan ($29.5
million -- 3.9% of the pool), which is secured
by a 121 unit apartment building located in Manhattan. The property
is master leased to the New School through June, 2013. The
loan matures in November, 2011. Although performance has
been stable, Moody's stressed the cash flow due to our concerns
about 100% of the units being leased to a single tenant and the
approaching loan maturity. Moody's LTV and stressed DSCR
are 83% and 1.17X, respectively, compared to
66% and 1.23X at last review.
The third largest loan is The Plaza at Citrus Park Loan ($26.7
million -- 3.5% of the pool), which is secured
by a 325,000 square foot retail center located in Tampa, Florida.
The property was 96% leased as of December, 2009 compared
to 97% at last review. Moody's LTV and stressed DSCR
are 66% and 1.48X, respectively, compared to
57% and 1.57X at last review.
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
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.
Structured Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Downgrades Ten and Affirms Three CMBS Classes of BACM 2002-PB2
250 Greenwich Street
New York, NY 10007