Approximately $797.5 Million of Structured Securities Affected
New York, April 25, 2011 -- Moody's Investors Service (Moody's) upgraded the ratings of eight classes
and affirmed ten classes of LB-UBS Commercial Mortgage Trust,
Commercial Mortgage Pass-Through Certificates, Series 2004-C8
as follows:
Cl. A-4, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-5, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-6, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. X-CP, Affirmed at Aaa (sf); previously on
Dec 7, 2004 Definitive Rating Assigned Aaa (sf)
Cl. A-J, Upgraded to Aaa (sf); previously on
Jan 13, 2011 Downgraded to Aa2 (sf)
Cl. B, Upgraded to Aa3 (sf); previously on Jan 13,
2011 Downgraded to A2 (sf)
Cl. C, Upgraded to A3 (sf); previously on Jan 13,
2011 Downgraded to Baa2 (sf)
Cl. D, Upgraded to Baa3 (sf); previously on Jan 13,
2011 Downgraded to Ba2 (sf)
Cl. E, Upgraded to B2 (sf); previously on Jan 13,
2011 Downgraded to Caa1 (sf)
Cl. F, Upgraded to Caa1 (sf); previously on Jan 13,
2011 Downgraded to Ca (sf)
Cl. G, Upgraded to Caa2 (sf); previously on Jan 13,
2011 Downgraded to C (sf)
Cl. H, Upgraded to Caa3 (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. J, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. K, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. L, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. M, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
Cl. N, Affirmed at C (sf); previously on Apr 15,
2010 Downgraded to C (sf)
RATINGS RATIONALE
The upgrades are due to lower expected losses for the pool resulting from
a smaller than anticipated loss realized at the liquidation of the Lembi
Portfolio ($113.9 million balance at liquidation --
12% of the pool), decreased loss expectations for other loans
in the pool, increased credit subordination and improved overall
pool performance.
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
6.5% of the current balance. At last review,
Moody's cumulative base expected loss was 9.1%.
Moody's stressed scenario loss is 12.4% 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.
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 current sluggish macroeconomic
environment and varying performance in the commercial real estate property
markets. However, Moody's expects to see increasing or stabilizing
property values, higher transaction volumes, a slowing in
the pace of loan delinquencies and greater liquidity for commercial real
estate in 2011 The hotel and multifamily sectors are continuing to show
signs of recovery, while recovery in the office and retail sectors
will be tied to recovery of the broader economy. The availability
of debt capital continues to improve with terms returning toward market
norms. Moody's central global macroeconomic scenario reflects an
overall sluggish recovery through 2012, amidst ongoing individual,
corporate and governmental deleveraging, persistent unemployment,
and government budget considerations.
The principal methodologies used in these ratings were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005
and "CMBS: Moody's Approach to Rating Large Loan/Single Borrower
Transactions" published in July 2000.
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 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 18
compared to 15 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 8.0 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 13, 2011.
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 April 15, 2011 distribution date, the transaction's
aggregate certificate balance has decreased by 38% to $810.7
million from $1.3 billion at securitization. The
Certificates are collateralized by 63 mortgage loans ranging in size from
less than 1% to 14% of the pool, with the top ten
non-defeased loans representing 40% of the pool.
Three loans, representing 27% of the pool, have defeased
and are secured by U.S. Government securities. Defeasance
at last review represented 23% of the pool. The pool contains
one loan with an investment grade credit estimate, representing
14% of the pool.
Eleven loans, representing 11% 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.
Nine loans have been liquidated from the pool, resulting in a realized
loss of $11.4 million (6% loss severity).
Currently ten loans, representing 15% of the pool,
are in special servicing. The largest specially serviced loan is
the Hunt Retail Portfolio Loan ($32.1 million -- 4.0%
of the pool), which is secured by eleven retail properties totaling
225,614 square feet (SF) located across five states in the Southeastern
and Southwestern U.S. The loan was transferred to special
servicing in October 2008 due to monetary default and became real estate
owned (REO) in mid-2009. An appraisal dated July 6th,
2010 valued the portfolio at $21.7 million.
The remaining eight specially serviced properties are secured by a mix
of property types. Moody's estimates an aggregate $38.0
million loss for the specially serviced loans (45% expected loss
on average).
Moody's has assumed a high default probability for three poorly
performing loans representing 1% of the pool and has estimated
an aggregate $2.0 million loss (20% expected loss
based on a 50% probability default) from these troubled loans.
Moody's was provided with full year 2009 operating results for 60%
of the pool's non-defeased loans and partial year 2010 financials
for 84% of the pool's non-defeased loans. Excluding
specially serviced and troubled loans, Moody's weighted average
LTV is 92% compared to 97% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 11%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of non-defeased
loans of 9.2%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.28X and 1.05X, respectively,
compared to 1.35X and 1.10X 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.
For analysis of the collateral underlying the loan with a credit estimate
and the three largest conduit loans, Moody's used the same
financial information as the January 2011 review as we have received minimal
updated financial information since the last review.
The loan with a credit estimate is The Grace Building Loan ($111.2
million -- 13.7% of the pool), which is secured
by a 1.5 million square foot office building located in the Midtown
submarket of New York City. The loan represents a 33% pari-passu
interest in a $337.0 million loan. A $28.5
million B Note, which is held outside the trust, also encumbers
the property. The property is currently 100% leased.
Brookfield Office Properties and Swig Equities are the loan sponsors.
Moody's current underlying rating and stressed DSCR are Baa1 and 1.35X,
respectively.
The top three conduit loans represent 7% of the outstanding pool
balance. The largest loan is the North Haven Pavilion Loan ($24.5
million -- 3.0% of the pool), which is secured
by a 148,052 square foot shadow anchored retail center located in
North Haven, Connecticut. As of September 2010, the
center was 98% leased, the same as at last review and securitization.
Major tenants include Sports Authority (36% of the net rentable
area (NRA); lease expiration in October 2019) and Michael's Stores
(16% of the NRA; lease expiration in February 2014).
Moody's LTV and stressed DSCR are 103% and 1.00X,
respectively.
The second largest loan is the Parkridge Six Aurora Loan Services Loan
($22.7 million -- 2.4% of the
pool), which is secured by a 161,218 square foot office building
located in Littelton, a suburb of Denver, Colorado.
The property is 100% leased to Aurora Loan Services through July
2016. Moody's LTV and stressed DSCR are 99% and 1.03X,
respectively.
The third largest loan is the Rosemead Place Loan ($21.1
million -- 2.3% of the pool), which
is secured by a 340,583 square foot anchored retail property located
in the San Gabriel Valley section of Los Angeles County. Major
tenants include Target (40% of the NRA; lease expiration in
November 2037) and Bally's Total Fitness (13% of the NRA;
lease expiration in February 2016). As of September 2010,
the property was 88% leased compared to 95% at securitization.
Moody's LTV and stressed DSCR are 84% and 1.16X, respectively.
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, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Analytics' information.
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.
New York
Andrew Florio
Associate Analyst
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 Upgrades Eight and Affirms Ten CMBS Classes of LB-UBS 2004-C8
