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Rating Action:

Moody's Downgrades Three and Affirms 13 CMBS Classes of LBUBS 2004-C1

09 Nov 2012

Approximately $960 Million of Structured Securities Affected

New York, November 09, 2012 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes and affirmed 13 classes of LB-UBS Commercial Mortgage Trust Series 2004-C1 as follows:

Cl. A-3, Affirmed at Aaa (sf); previously on Feb 20, 2004 Definitive Rating Assigned Aaa (sf)

Cl. A-4, Affirmed at Aaa (sf); previously on Feb 20, 2004 Definitive Rating Assigned Aaa (sf)

Cl. B, Affirmed at Aaa (sf); previously on Nov 21, 2006 Upgraded to Aaa (sf)

Cl. C, Affirmed at Aaa (sf); previously on Nov 21, 2006 Upgraded to Aaa (sf)

Cl. D, Affirmed at Aa1 (sf); previously on Nov 21, 2006 Upgraded to Aa1 (sf)

Cl. E, Affirmed at Aa3 (sf); previously on Nov 21, 2006 Upgraded to Aa3 (sf)

Cl. F, Affirmed at A1 (sf); previously on Nov 21, 2006 Upgraded to A1 (sf)

Cl. G, Downgraded to Ba1 (sf); previously on Feb 20, 2004 Definitive Rating Assigned A3 (sf)

Cl. H, Downgraded to B3 (sf); previously on Dec 1, 2011 Downgraded to B1 (sf)

Cl. J, Downgraded to Caa1 (sf); previously on Dec 1, 2011 Downgraded to B3 (sf)

Cl. K, Affirmed at Caa3 (sf); previously on Aug 4, 2011 Downgraded to Caa3 (sf)

Cl. L, Affirmed at Ca (sf); previously on Nov 18, 2010 Downgraded to Ca (sf)

Cl. M, Affirmed at C (sf); previously on Nov 18, 2010 Downgraded to C (sf)

Cl. N, Affirmed at C (sf); previously on Nov 18, 2010 Downgraded to C (sf)

Cl. X-CL, Affirmed at Ba3 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

Cl. X-ST, Affirmed at A3 (sf); previously on Feb 22, 2012 Downgraded to A3 (sf)

RATINGS RATIONALE

The downgrades are due to interest shortfall concerns. Interest shortfalls are contained to Class J, which is the same as at Moody's December 2011 review. However, the amount of shortfalls at Class J have increased to $106 thousand from $38 thousand at Moody's previous review. The Passaic Street Industrial Park Loan ($38M -- 3.9% of the pool) was recently modified into a $22M A-Note and a $16M B-Note. Interest on the B-Note is not payable, while the interest rate on the A-Note was initially reduced to 4.5% from 6.65%. The modification is causing approximately $128 thousand of recurring monthly shortfalls.

The affirmations for the 11 principal and interest bonds 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 their current ratings.

The rating of the IO Classes, Class X-CL and X-ST, are consistent with the expected credit performance of their referenced classes and thus are affirmed.

Moody's rating action reflects a cumulative base expected loss of 4.8% of the current pooled balance compared to 4.7% at Moody's prior review. Moody's provides a current list of base expected 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 extent of growth in the current macroeconomic environment and commercial real estate property markets. Commercial real estate property values are continuing to move in a positive direction along with a rise in investment activity and stabilization in core property type performance. Limited new construction and moderate job growth have aided this improvement. However, a consistent upward trend will not be evident until the volume of investment activity steadily increases for a significant period, non-performing properties are cleared from the pipeline, and fears of a Euro area recession are abated.

The hotel sector is performing strongly with eight straight quarters of growth and the multifamily sector continues to show increases in demand with a growing renter base and declining home ownership. Slow recovery in the office sector continues with minimal additions to supply. However, office demand is closely tied to employment, where growth remains slow and employers are considering decreases in the leased space per employee. Also, primary urban markets are outperforming secondary suburban markets. Performance in the retail sector continues to be mixed with retail rents declining for the past four years, weak demand for new space and lackluster sales driven by discounting and promotions. However, rising wages and reduced unemployment, along with increased consumer confidence, is helping to spur consumer spending resulting in increased sales. Across all property sectors, the availability of debt capital continues to improve with robust securitization activity of commercial real estate loans supported by a monetary policy of low interest rates.

Moody's central global macroeconomic scenario maintains its forecast of relatively robust growth in the US and an expectation of a mild recession in the euro area for 2012. Downside risks remain significant, and elevated downside risks and their materialization could pose a serious threat to the outlook. Major downside risks include: a deeper than expected recession in the euro area; the potential for a hard landing in major emerging markets; an oil supply shock; and material fiscal tightening in the US given recent political gridlock. Healthy but below-trend growth in GDP is expected through the rest of this year and next with risks trending to the downside.

The methodologies used in this rating were "Moody's Approach to Rating Fusion U.S. CMBS Transactions" published in April 2005, "Moody's Approach to Rating CMBS Large Loan/Single Borrower Transactions" published in July 2000, and "Moody's Approach to Rating Structured Finance Interest-Only Securities" published in February 2012. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.61 which is used for both conduit and fusion transactions. Conduit model results at the Aa2 (sf) 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 (sf) 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 (sf) and B2 (sf), 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 assessments is melded with the conduit model credit enhancement into an overall model result. Fusion loan credit enhancement is based on the credit assessment 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 credit assessment level, is incorporated for loans with similar credit assessments in the same transaction.

Moody's review also utilized the IO calculator ver1.1, which uses the following inputs to calculate the proposed IO rating based on the published methodology: original and current bond ratings and credit assessments; original and current bond balances grossed up for losses for all bonds the IO(s) reference(s) within the transaction; and IO type as defined in the published methodology. The calculator then returns a calculated IO rating based on both a target and mid-point. For example, a target rating basis for a Baa3 (sf) rating is a 610 rating factor. The midpoint rating basis for a Baa3 (sf) rating is 775 (i.e. the simple average of a Baa3 (sf) rating factor of 610 and a Ba1 (sf) rating factor of 940). If the calculated IO rating factor is 700, the CMBS IO calculator would provide both a Baa3 (sf) and Ba1 (sf) IO indication for consideration by the rating committee.

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 10, which is the same as 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 8.5 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 a review utilizing MOST® (Moody's Surveillance Trends) Reports and a proprietary program that highlights significant credit changes that have occurred in the last month as well as cumulative changes since the last full transaction review. On a periodic basis, Moody's also performs a full transaction review that involves a rating committee and a press release. Moody's prior transaction review is summarized in a press release dated December 1, 2011. Please see the ratings tab on the issuer / entity page on moodys.com for the last rating action and the ratings history.

DEAL PERFORMANCE

As of the October 17, 2012 distribution date, the transaction's aggregate pooled certificate balance has decreased by 31% to $976 million from $1.4 billion at securitization. The Certificates are collateralized by 81 mortgage loans ranging in size from less than 1% to 20% of the pool, with the top ten loans representing 63% of the pool. Ten loans, representing 7% of the pool, have been defeased and are collateralized with U.S. Government Securities. Three loans, representing 49% of the pool, have investment grade credit assessments.

Thirteen loans, representing 19% 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.

Seven loans have been liquidated at a loss from the pool, resulting in an aggregate realized loss of $13 million (37% average loss severity). Five loans, representing 4% of the pool, are currently in special servicing. The largest specially serviced loan was formerly known as the Colonial Bank Plaza Loan ($15 million -- 1.6%). It is secured by 110,000 square feet (SF) of office in Las Vegas, Nevada. Colonial Banks was shut down by the F.D.I.C. in 2009 and is no longer a tenant at the property. The loan transferred to special servicing in August 2010 and became real estate owned (REO) in July 2011. The servicer intends to stabilize the asset and market it for sale in 2013.

The remaining three specially serviced loans are secured by a mix of office, retail and multifamily property types. The servicer has recognized an aggregate $21 million appraisal reduction for three of the four specially serviced loans, while Moody's review incorporates an aggregate $23 million loss (69% average loss severity) for all of the specially serviced loans.

Moody's has assumed a high default probability for five poorly performing loans representing 3% of the pool and has estimated a $14 million aggregate loss (51% expected loss based on a 72% probability default) from these troubled loans.

Moody's was provided with full year 2011 and partial year 2012 operating results for 95% and 70% of the pool's non-defeased loans. Moody's weighted average conduit LTV is 83% compared to 82% at Moody's prior review. The conduit portion of the pool excludes specially serviced, troubled and defeased loans as well as the three loans with credit assessments. Moody's net cash flow reflects a weighted average haircut of 6% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.5%.

Moody's actual and stressed conduit DSCRs are 1.48X and 1.31X, respectively, compared to 1.43X and 1.31X 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 assessment is the GIC Office Portfolio Loan ($190 million -- 19.5%), which is a pari-passu interest in a $666 million first mortgage loan. The loan is secured by a portfolio of 12 office properties located in seven states and totaling 6.4 million SF. The largest geographic concentrations are Illinois (39%), Pennsylvania (17%) and California (12%). The portfolio was 87% leased as of March 2012, which is the same as at last review. The portfolio is also encumbered by a $119 million B Note. The loan had a 60-month interest only period, but is now amortizing. The loan matures in January 2014. Moody's current credit assessment and stressed DSCR are Baa3 and 1.45X, respectively, compared to Baa3 and 1.44X at Moody's last review.

The second largest loan with a credit assessment is the UBS Center -- Stamford Loan ($182 million -- 18.6%), which is secured by the leasehold interest in a 682,000 SF Class A office property located in Stamford, Connecticut. The property is 100% leased to UBS AG and serves as the U.S. headquarters of UBS Investment Bank. The lease is triple net and expires in December 2017. The loan is structured with a 23.75 year amortization schedule and matures in October 2016. Moody's current credit assessment is A3, the same as at Moody's last review.

The third largest loan with a credit assessment is the MGM Tower Loan ($110 million -- 11.3%), which is secured by a 777,000 SF Class A office building located in the Century City office submarket of Los Angeles, California. The property is also encumbered by a $76 million B Note. As of July 2012, the property was 78% leased compared to 84% as of December 2011. MGM previously occupied approximately 342,000 SF at the tower, however, MGM declared bankruptcy and vacated all of its space. Although the sponsor has been able to lease approximately half of the former MGM space, property performance has declined. The loan has amortized 16% since securitization, which partially mitigates the decline in property performance. Moody's current credit assessment and stressed DSCR are Aa1 and 2.50X, respectively, compared to Aa1 and 2.72X at Moody's last review.

The top three performing conduit loans represent 7% of the pool balance. The largest conduit loan is the Kurtell Medical Office Portfolio Loan ($26 million -- 2.7%), which is secured by 212,000 SF contained in five medical office buildings and one out-patient surgical center located in Nashville, Tennessee (5) and Orlando, Florida. The portfolio contains one underperforming property, but the overall portfolio is 94% leased as of June 2012. Moody's LTV and stressed DSCR are 85% and 1.27X, respectively, compared to 80% and 1.35X at Moody's last review.

The second largest loan is the Passaic Street Industrial Park A-Note ($22 million -- 2.2%), which is secured by 2.2 million SF of Class C industrial warehouse space located in Woodridge, New Jersey. The loan transferred to special servicing in March 2010 due to imminent monetary default. As previously discussed, the $38M whole loan was modified with a note bifurcation and an interest rate reduction in May 2012. The collateral is 62% leased as of June 2012. Moody's LTV and stressed DSCR for the A-Note are 129% and 0.78X, respectively.

The third largest loan is The Fountains Loan ($19 million -- 2.0%), which is secured by a 130,000 SF grocery-anchored retail center located in Overland Park, Kansas. As of December 2011, the property was 94% leased, which is the same as at last review. Moody's LTV and stressed DSCR are 93% and 1.1X, respectively, compared to 101% and 0.96X at Moody's last review.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the 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 did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments related to the monitoring of this transaction in the past six months.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Peter Benjamin Simon
Associate Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Keith Banhazl
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Downgrades Three and Affirms 13 CMBS Classes of LBUBS 2004-C1
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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Moody's Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody's Corporation ("MCO"), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody's Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody's Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $2,700,000. MCO and Moody's investors Service also maintain policies and procedures to address the independence of Moody's Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody's Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading "Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy."

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY'S affiliate, Moody's Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody's Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to "wholesale clients" within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY'S that you are, or are accessing the document as a representative of, a "wholesale client" and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to "retail clients" within the meaning of section 761G of the Corporations Act 2001. MOODY'S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.

Additional terms for Japan only: Moody's Japan K.K. ("MJKK") is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody's Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody's SF Japan K.K. ("MSFJ") is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ("NRSRO"). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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