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Rating Action:

Moody's Downgrades Three and Affirms 14 CMBS Classes of BACM 2004-2

01 Dec 2011

Approximately $572.6 Million of Structured Securities Affected

NOTE: On December 02, 2011, the press release was revised as follows: Adds a reference to the Request for Comment on a Global Methodology Change for Structured Finance Interest Only Securities. Revised release follows:

New York, December 01, 2011 -- Moody's Investors Service (Moody's) downgraded the ratings of three classes and affirmed 14 classes of Banc of America Commercial Mortgage Inc., Commercial Mortgage Pass-Through Certificates, Series 2004-2 as follows:

Cl. A-3, Affirmed at Aaa (sf); previously on October 1, 2004 Definitive Rating Assigned Aaa (sf) and Confirmed

Cl. A-4, Affirmed at Aaa (sf); previously on October 1, 2004 Definitive Rating Assigned Aaa (sf) and Confirmed

Cl. A-5, Affirmed at Aaa (sf); previously on October 1, 2004 Definitive Rating Assigned Aaa (sf) and Confirmed

Cl. B, Affirmed at Aaa (sf); previously on June 26, 2008 Upgraded to Aaa (sf)

Cl. C, Affirmed at Aaa (sf); previously on June 26, 2008 Upgraded to Aaa (sf)

Cl. D, Affirmed at Aa1 (sf); previously on January 28, 2011 Upgraded to Aa1 (sf)

Cl. E, Affirmed at A1 (sf); previously on January 28, 2011 Upgraded to A1 (sf)

Cl. F, Affirmed at Baa1 (sf); previously on October 1, 2004 Definitive Rating Assigned Baa1 (sf) and Confirmed

Cl. G, Affirmed at Baa2 (sf); previously on October 1, 2004 Definitive Rating Assigned Baa2 (sf) and Confirmed

Cl. H, Affirmed at Baa3 (sf); previously on October 1, 2004 Definitive Rating Assigned Baa3 (sf) and Confirmed

Cl. J, Affirmed at Ba1 (sf); previously on October 1, 2004 Definitive Rating Assigned Ba1 (sf) and Confirmed

Cl. K, Affirmed at Ba2 (sf); previously on October 1, 2004 Definitive Rating Assigned Ba2 (sf) and Confirmed

Cl. L, Downgraded to B1 (sf); previously on October 1, 2004 Definitive Rating Assigned Ba3 (sf) and Confirmed

Cl. M, Downgraded to B2 (sf); previously on October 1, 2004 Definitive Rating Assigned B1 (sf) and Confirmed

Cl. N, Downgraded to B3 (sf); previously on October 1, 2004 Definitive Rating Assigned B2 (sf) and Confirmed

Cl. O, Affirmed at Caa1 (sf); previously on January 28, 2011 Downgraded to Caa1 (sf)

Cl. XC, Affirmed at Aaa (sf); previously on October 1, 2004 Definitive Rating Assigned Aaa (sf) and Confirmed

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.

The affirmations are due to key parameters, including Moody's loan to value (LTV) ratio, Moody's stressed debt service coverage ratio (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.

Moody's rating action reflects a cumulative base expected loss of 4.5% of the current balance. At last review, Moody's cumulative base expected loss was 4%. Moody's stressed scenario loss is 9% 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.

The performance expectations for a given variable indicate Moody's forward-looking view of the likely range of performance over the medium term. From time to time, Moody's may, if warranted, change these expectations. Performance that falls outside the given range may indicate that the collateral's credit quality is stronger or weaker than Moody's had anticipated when the related securities ratings were issued. Even so, a deviation from the expected range will not necessarily result in a rating action nor does performance within expectations preclude such actions. The decision to take (or not take) a rating action is dependent on an assessment of a range of factors including, but not exclusively, the performance metrics.

Primary sources of assumption uncertainty are the extent of the slowdown in growth in the current macroeconomic environment and the commercial real estate property markets. While commercial real estate property markets are gaining momentum, a consistent upward trend will not be evident until the volume of transactions increases, distressed properties are cleared from the pipeline and job creation rebounds. The hotel and multifamily sectors are in recovery and improvements in the office sector continue, with fundamentals in Gateway cities outperforming their suburban counterparts. However, office demand is closely tied to employment, where fundamentals remain weak, so significant improvement may be delayed. Performance in the retail sector has been mixed with on-going rent deflation and leasing challenges. Across all property sectors, the availability of debt capital continues to improve with monetary policy expected to remain supportive and interest rate hikes postponed. Moody's central global macroeconomic scenario reflects an overall downward revision of forecasts since last quarter , amidst ongoing fiscal consolidation efforts, household and banking sector deleveraging, persistently high unemployment levels, and weak housing markets that will continue to constrain growth.

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

Moody's noted that on November 22, 2011, it released a Request for Comment, in which the rating agency has requested market feedback on potential changes to its rating methodology for Interest-Only Securities. If the revised methodology is implemented as proposed the rating on Banc of America Commercial Mortgage Inc., Commercial Mortgage Pass-Through Certificates, Series 2004-2 Class XC may be negatively affected. Please refer to Moody's request for Comment, titled "Proposal Changing the Global Rating Methodology for Structured Finance Interest-Only Securities," for further details regarding the implications of the proposed methodology change on Moody's rating. Please see the Credit Policy page on www.moodys.com for a copy of this methodology and the Request for Comment.

Moody's review incorporated the use of the excel-based CMBS Conduit Model v 2.60 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 estimates 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 credit estimate 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 16 compared to 16 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 8.1 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 January 28, 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 November 10, 2011 distribution date, the transaction's aggregate certificate balance has decreased by 50% to $572.6 million from $1.13 billion at securitization. The Certificates are collateralized by 51 mortgage loans ranging in size from less than 1% to 13% of the pool, with the top ten non-defeased loans representing 48% of the pool. Eleven loans, representing 19% of the pool, have defeased and are secured by U.S. Government securities.

Nine loans, representing 14% 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.

One loan has been liquidated from the pool, resulting in a realized loss of $1.2 million (46% loss severity). Currently two loans, representing 4% of the pool, are in special servicing. The largest specially serviced loan is the Lakeside III Loan ($13.4 million -- 2.3% of the pool), which is secured by a 102,000 square foot (SF) office building located in Dulles, Virginia. The loan was transferred to special servicing in March 2011 due to imminent default. The property is currently 97% occupied, however a major tenant (65% NRA) is exercising its early termination clause and vacating in November 2012. The tenant will pay $1.5 million for the early termination fee and the property will become 33% occupied. The borrower submitted a loan modification proposal in October 2011. The other specially serviced loan is secured by a retail center in Keene, NH. Moody's estimates an aggregate $7.8 million loss for both the specially serviced loans (32% expected loss on average).

Moody's has assumed a high default probability for one poorly performing loan representing 2% of the pool and has estimated an $1.7 million loss (15% expected loss based on a 30% probability default) from this troubled loan.

Moody's was provided with full year 2010 operating results for 100% of the pool. Excluding specially serviced and troubled loans, Moody's weighted average LTV is 87% compared to 83% at Moody's prior review. Moody's net cash flow reflects a weighted average haircut of 14% to the most recently available net operating income. Moody's value reflects a weighted average capitalization rate of 9.0%.

Excluding special serviced and troubled loans, Moody's actual and stressed DSCRs are 1.48X and 1.22X, respectively, compared to 1.57X and 1.28X 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 Prince Kuhio Plaza Loan ($35.2 million -- 6.2%), which is secured by the borrower's interest in a 504,000 square foot regional mall located in Hilo, Hawaii. The mall is owned by an affiliate of General Growth Properties, Inc. (GGP). The mall was 80% leased as of June 2011 compared to 87% at last review. Anchor tenants include Sears, Macy's and Safeway. The property's performance has declined since last review, but the decline has been largely offset by amortization. The loan amortized 2% since last review. Moody's current credit estimate and stressed DSCR are Baa3 and 1.41X, respectively, compared to Baa3 and 1.38X at last review.

The top three performing conduit loans represent 25.6% of the pool balance. The largest loan is the Eden Prairie Mall Loan ($75.4 million -- 13.2%), which is secured by the borrower's interest in a 1.1 million square foot regional mall located in suburban Minneapolis, Minnesota. The mall is owned by an affiliate of GGP. The mall was 98% leased as of June 2011 compared to 99% at last review. The mall's performance has declined significantly due to a 37% increase in real estate taxes as well as a 55% increase in repairs and maintenance. Anchor tenants include Sears, Target, Von Maur and Kohl's. Moody's LTV and stressed DSCR are 98% and 0.99X, respectively, compared to 74% and 1.32X at last review.

The second largest loan is the Broward Financial Loan ($42 million -- 7.4%), which is secured by a 325,500 square foot Class A office tower located in downtown Fort Lauderdale, Florida. The property was 79% leased as of June 2011 compared to 76% at last review. The loan is on the servicer's watchlist due to the June 2011 lease expiration and vacancy of the property's largest tenant, Franklin Templeton, which leased 42% of the property. The borrower has leased up about 65% or 90,000 square feet of Templeton's vacant space, and thus increasing occupancy to 64%. The loan matures in February 2012. Moody's LTV and stressed DSCR are 133% and 0.81X, respectively compared to 128% and 0.84X as at last review.

The third largest loan is the MHC Portfolio-Waterford Estates Loan ($29 million -- 5.1%), which is secured by a 731-pad manufactured housing community located approximately ten miles south of Wilmington in Bear, Delaware. The property was 96% leased as of September 2010, essentially the same at last review. Performance has been stable and the loan has benefited from amortization. Moody's LTV and stressed DSCR are 90% and 1.05X, respectively, compared to 93% and 1.02X at last review.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. 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.

Brad Kamedulski
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

Michael M. Gerdes
MD - Structured Finance
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 14 CMBS Classes of BACM 2004-2
No Related Data.
© 2019 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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