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Rating Action:

Moody's Upgrades Four, Affirms One and Downgrades One CMBS Class of LBUBS 2003-C3

27 Jun 2013

Approximately $20.4 Million of Structured Securities Affected

New York, June 27, 2013 -- Moody's Investors Service (Moody's) upgraded the ratings of four classes, affirmed one class and downgraded one class of LB-UBS Commercial Mortgage Trust 2003-C3, Commercial Mortgage Pass-Through Certificates, Series 2003-C3 as follows:

Cl. M, Upgraded to Aaa (sf); previously on Jun 30, 2003 Definitive Rating Assigned Ba2 (sf)

Cl. N, Upgraded to Aa3 (sf); previously on Jan 20, 2012 Downgraded to B1 (sf)

Cl. P, Upgraded to A1 (sf); previously on Jan 20, 2012 Downgraded to B2 (sf)

Cl. Q, Upgraded to B1 (sf); previously on Jan 20, 2012 Downgraded to B3 (sf)

Cl. S, Affirmed Caa2 (sf); previously on Jan 20, 2012 Downgraded to Caa2 (sf)

Cl. X-CL, Downgraded to Caa2 (sf); previously on Feb 22, 2012 Downgraded to Ba3 (sf)

RATINGS RATIONALE

The upgrades are due to increased credit support due to loan payoffs and amortization. The pool has paid down 95% since Moody's last review.

The downgrade of the IO Class, Class X-CL, is a result of a decline in credit quality of its referenced classes as a result of the paydown of highly rated reference classes.

The rating of Class S is consistent with Moody's base expected loss and thus is affirmed.

Moody's rating action reflects a base expected loss of 12.6% of the current balance. At last review, Moody's base expected loss was 1.9%. On a percentage basis the base expected loss has increased significantly due to the 95% paydown since last review. However, on a numerical basis, the base expected loss has actually decreased by $6.6 million. The pool has realized no additional realized losses since last review. Moody's base expected loss plus realized losses is now 1.1% of the original pooled balance compared to 1.6% at last review. Moody's provides a current list of base 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 rated 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 growth in the current macroeconomic environment given the weak pace of recovery in the commercial real estate property markets. Commercial real estate property values are continuing to move in a modestly 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 methodologies used in this rating were "Moody's Approach to Rating U.S. CMBS Conduit Transactions" published in September 2000 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 review incorporated the use of the excel-based CMBS Conduit Model v 2.62 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 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 compared to 8 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 January 10, 2013. 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 June 17, 2013 distribution date, the transaction's aggregate certificate balance has decreased by 98% to $27.9 million from $1.3 billion at securitization. The Certificates are collateralized by 15 mortgage loans ranging in size from 3% to 19% of the pool, with the top ten loans representing 83% of the pool.

There are no loans on the master servicer's watchlist.

Ten loans have been liquidated from the pool, resulting in an aggregate realized loss of $10.9 million (39% loss severity on average). Four loans, representing 32% of the pool, are currently in special servicing. The largest specially serviced loan is the Phillips Edison - Crossroads East Loan ($3.0 million -- 10.8% of the pool), which is secured by a 72,000 square foot (SF) unanchored retail center in Columbus, Ohio. The loan transferred to special servicing in August 2012 due to imminent monetary default. The property was 78% leased as of June 2013 and its largest tenant, representing 12% of the net rentable area (NRA), has a lease expiration in August 2013. The special servicer indicated that it is proceeding with a deed-in-lieu (DIL) and then plan to market the property for sale.

The second largest specially servicing loan is the Ellard Village Loan ($2.95 million -- 10.6% of the pool), which is secured by a 26,000 SF retail property located in Roswell, Georgia. The loan transferred to special servicing in March 2013 due to maturity default. The special servicer indicated that it is currently pursuing foreclosure.

The remaining two specially serviced loans are secured by retail properties. Moody's estimates an aggregate $3.0 million loss for the non-performing specially serviced loans (41% expected loss on average).

Moody's was provided with full year 2011 and full or partial year 2012 operating results for 83% and 58% of the pool's non-specially serviced loans. Excluding the non-performing specially serviced loans, Moody's weighted average LTV is 65% compared to 80% 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 9.4%.

Excluding non-performing special serviced loans, Moody's actual and stressed DSCRs are 1.23X and 1.68X, respectively, compared to 1.41X and 1.37X 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 top three conduit loans represent 39% of the pool. The largest conduit loan is the Rancho La Costa Loan ($5.2 million -- 18.8% of the pool), which is secured by a 27,000 SF retail property located in Carlsbad, California. The property was 100% leased as of March 2013. The largest tenant, CVS, leases 54% of NRA through June 2022. Property performance has been stable and the loan matures in November 2018. Moody's LTV and stressed DSCR are 60% and 1.73X, respectively, compared to 59% and 1.75X at last review.

The second largest conduit loan is the Walgreens-Henderson Loan ($3.6 million -- 13.0% of the pool), which is secured by a 15,000 SF single tenant retail property located in Henderson, Nevada. The property is fully leased to Walgreen Co (Moody's senior unsecured rating Baa1, negative outlook) through March 2061. Property performance has been stable and the loan matures in February 2015. Moody's LTV and stressed DSCR are 95% and 1.05X, respectively, compared to 95% and 1.06X at last review.

The third largest conduit loan is the Rite Aid -- Medina Loan ($1.9 million -- 6.8% of the pool), which is secured by a 11,000 SF single tenant retail property located in Medina, Ohio. The property is fully leased to Rite Aid through July 2021 which coincides with the loan maturity date of August 2021. The loan fully amortizes during the loan term and has amortized 36% since securitization. Moody's LTV and stressed DSCR are 64% and 1.57X, respectively, compared to 64% and 1.56X at last review.

REGULATORY DISCLOSURES

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.

In conducting surveillance of this credit, Moody's considered performance data contained in servicer and remittance reports. Moody's obtains servicer reports on this transaction on a periodic basis, at least annually.

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 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 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 rating action, and whose ratings may change as a result of this 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.

Matthew Halpern
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 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 Upgrades Four, Affirms One and Downgrades One CMBS Class of LBUBS 2003-C3
No Related Data.
© 2021 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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