Approximately $332.9 Million of Structured Securities Affected
New York, October 19, 2017 -- Moody's Investors Service, ("Moody's") has
upgraded the rating on one class, affirmed the ratings on two classes,
and downgraded the rating on one class in Banc of America Commercial Mortgage
Inc., Commercial Mortgage Pass-Through Certificates,
Series 2008-LS1
Cl. A-1A, Upgraded to Aaa (sf); previously on
Nov 9, 2016 Affirmed Aa1 (sf)
Cl. A-SM, Affirmed A2 (sf); previously on Nov
9, 2016 Affirmed A2 (sf)
Cl. A-M, Affirmed Caa3 (sf); previously on Nov
9, 2016 Downgraded to Caa3 (sf)
Cl. XW, Downgraded to C (sf); previously on Jun 9,
2017 Downgraded to Ca (sf)
RATINGS RATIONALE
The rating on Class A-1A was upgraded based primarily on an increase
in credit support resulting from loan paydowns and amortization.
The deal has paid down 71% since Moody's last review.
The rating on Class A-SM was affirmed because the transaction's
key metrics, including Moody's loan-to-value (LTV)
ratio, Moody's stressed debt service coverage ratio (DSCR) and the
transaction's Herfindahl Index (Herf), are within acceptable
ranges. The rating on Class AM was affirmed because the ratings
are consistent with Moody's expected loss.
The rating on the IO Class (Class XW) was downgraded due to the decline
in the credit quality of its reference classes resulting from principal
paydowns of higher quality reference classes.
Moody's rating action reflects a base expected loss of 26.4%
of the current pooled balance, compared to 6.9% at
Moody's last review. Moody's base expected loss plus realized
losses is now 24.4% of the original pooled balance,
compared to 24.0% at the last review. Moody's
provides a current list of base expected losses for conduit and fusion
CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration, an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The methodologies used in these ratings were "Approach to Rating US and
Canadian Conduit/Fusion CMBS" published in July 2017, and "Moody's
Approach to Rating Large Loan and Single Asset/Single Borrower CMBS"
published in July 2017. Please see the Rating Methodologies page
on www.moodys.com for a copy of these methodologies.
Additionally, the methodology used in rating Cl. XW was "Moody's
Approach to Rating Structured Finance Interest-Only (IO) Securities"
published in June 2017. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
Moody's analysis incorporated a loss and recovery approach in rating the
P&I classes in this deal since 59% of the pool is in special
servicing. In this approach, Moody's determines a probability
of default for each specially serviced and troubled loan that it expects
will generate a loss and estimates a loss given default based on a review
of broker's opinions of value (if available), other information
from the special servicer, available market data and Moody's
internal data. The loss given default for each loan also takes
into consideration repayment of servicer advances to date, estimated
future advances and closing costs. Translating the probability
of default and loss given default into an expected loss estimate,
Moody's then applies the aggregate loss from specially serviced to the
most junior classes and the recovery as a pay down of principal to the
most senior classes.
DEAL PERFORMANCE
As of the October 10, 2017 distribution date, the transaction's
aggregate certificate balance has decreased by 86% to $332.9
million from $2.35 billion at securitization. The
certificates are collateralized by 28 mortgage loans ranging in size from
less than 1% to 19% of the pool, with the top ten
loans (excluding defeasance) constituting 79% of the pool.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 10,
as compared to 54 at Moody's last review.
Nine loans, constituting 41% of the pool, are on the
master servicer's watchlist. The watchlist includes loans
that meet certain portfolio review guidelines established as part of the
CRE Finance Council (CREFC) monthly reporting package. As part
of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues that
could affect performance.
Seventy-five loans have been liquidated from the pool, resulting
in an aggregate realized loss of $483.5 million (for an
average loss severity of 57%). Eighteen loans, constituting
59% of the pool, are currently in special servicing.
The largest specially serviced loan is The Hallmark Building Loan ($64.0
million -- 19.2% of the pool), which is secured
by a 305,000 square foot (SF) six-story office building in
Dulles, Virginia. The loan transferred to special servicing
in December 2016 due to imminent default and the loan has passed its maturity
date in June 2017. As of January 2017, the property was 82%
leased, compared to 80% in June 2016.
The second largest specially serviced loan is the Poplar Run Office Building
Loan ($28.0 million -- 8.4% of the pool),
which is secured by a 144,672 SF office building located in Alexandria,
Virginia. The loan transferred to special servicing in November
2016 due to imminent default. As of December 2016, the property
was 95% leased, however, leases representing over 50%
of the net rentable area (NRA) expire by the end of 2019. The special
servicer indicated they are currently evaluating various workout strategies.
The third largest specially serviced loan is the Capital Square Office
Building -- A-1 Note ($23.0 million --
6.9% of the pool), which is secured by a 494,487
SF office building located in downtown Columbus, Ohio. The
original loan was modified in June 2017, which included a bifurcation
of the original A note into an A-1 ($23 million) and A-2
($7 million) note. The existing B note balance remained
the same. As of December 2016, the property was 77%
leased. Performance dropped in 2016 because of a decline in revenue
and occupancy.
The remaining specially serviced loans are secured by a mix of property
types. Moody's estimates an aggregate $78.6 million
loss for the specially serviced loans (40% expected loss on average).
Moody's received full year 2016 operating results for 100% of the
pool, and partial year 2017 operating results for 86% of
the pool (excluding specially serviced and defeased loans). Moody's
weighted average conduit LTV is 118%, compared to 99%
at Moody's last review. Moody's conduit component excludes
loans with structured credit assessments, defeased and CTL loans,
and specially serviced and troubled loans. Moody's net cash
flow (NCF) reflects a weighted average haircut of 29% to the most
recently available net operating income (NOI). Moody's value
reflects a weighted average capitalization rate of 9.4%.
Moody's actual and stressed conduit DSCRs are 1.15X and 0.86X,
respectively, compared to 1.35X and 1.10X at the last
review. Moody's actual DSCR is based on Moody's NCF
and the loan's actual debt service. Moody's stressed
DSCR is based on Moody's NCF and a 9.25% stress rate
the agency applied to the loan balance.
The top three conduit loans represent 32% of the pool balance.
The largest performing loan is the Two Liberty Center Loan ($51.1
million -- 15.3% of the pool), which is secured
by a 177,046 SF nine-story office building with 13,200
SF of retail space located in the Ballston section of Arlington,
Virginia. As of June 2017, the property was 100% leased,
unchanged from the prior year. The largest tenant, BAE Systems
(46% of NRA), will vacate its space at in January 2018.
A portion of BAE's space has been backfilled. The loan matures
in December 2017 and Moody's LTV and stressed DSCR are 123% and
0.79X, respectively.
The second largest loan is the 255 Rockville Pike Loan ($39.7
million -- 11.9% of the pool), which is secured
by a 145,281 SF office property located in downtown Rockville,
Maryland. As of June 2017, the property was 100% leased,
unchanged from the prior year. The largest tenant, Montgomery
County (99% of NRA), has a lease expiration in September
2022. The loan has passed its anticipated repayment date in September
2017 and has a final maturity date in 2037. Due to the single tenant
concentration, Moody's value of this property utilized a lit/dark
analysis. Moody's LTV and stressed DSCR are 131% and 0.75X,
respectively.
The third largest loan is the GE Transportation Systems Loan ($16.0
million -- 4.8% of the pool), which is secured
by a 191,500 SF office property located in Melbourne, Florida.
The sole tenant recently renewed its lease for another 10 years.
Due to the single tenant concentration, Moody's value of this
property utilized a lit/dark analysis. The loan matures in November
2017 and Moody's LTV and stressed DSCR are 94% and 1.07X,
respectively.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Paul Cognetti
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Matthew Halpern
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
