Approximately $21.4 Million of Structured Securities Affected
New York, July 24, 2014 -- Moody's Investors Service has upgraded the rating of one class,
affirmed the rating of one class and downgraded the rating of one class
of COMM 2003-LNB1, Commercial Mortgage Pass-Through
Certificates as follows:
Cl. H, Upgraded to Baa3 (sf); previously on Jul 18,
2013 Affirmed Caa1 (sf)
Cl. J, Affirmed Ca (sf); previously on Jul 18,
2013 Affirmed Ca (sf)
Cl. X-1, Downgraded to Caa3 (sf); previously
on Jul 18, 2013 Downgraded to B3 (sf)
RATINGS RATIONALE
The rating on P&I Class H was upgraded based primarily on an increase
in credit support resulting from loan paydowns and amortization.
The deal has paid down 84% since Moody's last review.
The rating on P&I Class J was affirmed because the rating is consistent
with Moody's expected loss. The rating on IO Class X-1
was downgraded due to the decline in the credit performance of its reference
classes resulting from principal paydowns of higher quality reference
classes.
Moody's rating action reflects a base expected loss of 25.3%
of the current balance compared to 17.2% at Moody's
last review. Moody's base expected loss plus realized losses is
now 5.1% of the original pooled balance compared to 5.7%
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://v3.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING:
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 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.
DESCRIPTION OF MODELS USED
Moody's review used the excel-based CMBS Conduit Model v
2.64, which it uses 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 Moody's uses
to estimate Moody's value). Conduit model results at the
B2 (sf) level are based on a paydown analysis using the individual loan-level
Moody's LTV ratio. Moody's may consider other concentrations
and correlations in its analysis. Based on the model pooled credit
enhancement levels of Aa2 (sf) and B2 (sf), the required credit
enhancement on 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, Moody's
merges the credit enhancement for loans with investment-grade structured
credit assessments with the conduit model credit enhancement for an overall
model result. Moody's incorporates negative pooling (adding
credit enhancement at the structured credit assessment level) for loans
with similar structured credit assessments in the same transaction.
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 4 compared
to 3 at Moody's last review.
When the Herf falls below 20, Moody's uses the excel-based
Large Loan Model v 8.7 and then reconciles and weights the results
from the conduit and large loan 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. Moody's
also further adjusts these aggregated proceeds for any pooling benefits
associated with loan level diversity and other concentrations and correlations.
DEAL PERFORMANCE
As of the July 10, 2014 distribution date, the transaction's
aggregate certificate balance has decreased by 98% to $21.4
million from $846 million at securitization. The certificates
are collateralized by five mortgage loans ranging in size from less than
1% to 43% of the pool.
No loans 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.
Eleven loans have been liquidated from the pool, resulting in an
aggregate realized loss of $37.8 million (for an average
loss severity of 56%). One loan, constituting 32%
of the pool, is currently in special servicing. The specially
serviced loan is the Biltmore Station Loan ($6.9 million
-- 32.2% of the pool), which is secured by a
107,277 square foot (SF) mixed use property located in Asheville,
NC. The loan was previously in special servicing and modified in
2011 into an A/B note split. The modification extended the loan
term to May 2015. The loan transferred to special servicing again
in August 2013 due to imminent default. Moody's estimates
a significant loss for the specially serviced loan.
Moody's received full year 2012 and 2013 operating results for 100%
of the pool. Moody's weighted average conduit LTV is 81%,
the same as 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 16% to the most recently available net operating income (NOI).
Moody's value reflects a weighted average capitalization rate of
9.9%.
Moody's actual and stressed conduit DSCRs are 0.87X and 1.40X,
respectively, compared to 1.17X and 1.36X 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 61% of the pool balance.
The largest loan is the Shaw's Merrimack Loan ($9.1
million -- 42.5% of the pool), which is secured
by a 65,000 SF grocery center located in Merrimack, NH.
The property is fully leased to Shaw's Supermarket through 2024.
The loan is fully amortizing. Moody's LTV and stressed DSCR are
96% and 1.13X, respectively, compared to 98%
and 1.10X at the last review.
The second largest loan is the Walgreens Douglasville Loan ($2.0
million -- 9.4% of the pool), which is secured
by a 15,000 SF Walgreens located in Douglasville, GA.
The property is 100% leased to the Walgreen Co. (Senior
Unsecured Rating Baa1; Outlook Stable) through 2027. The loan
is fully amortizing and matures in June 2023. Moody's LTV and stressed
DSCR are 65% and 1.59X, respectively, compared
to 67% and 1.54X at the last review.
The third largest loan is the Walgreens Canton Mart Loan ($1.9
million -- 9.0% of the pool), which is secured
by a 15,000 SF Walgreens located in Jackson, MS. The
property is 100% leased to the Walgreen Co. (Senior Unsecured
Rating Baa1; Outlook Stable) through 2021. The loan is fully
amortizing and matures in March 2021. Moody's LTV and stressed
DSCR are 48% and 2.15X, respectively, compared
to 51% and 2.02X at the last review.
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.
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.
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 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.
Tarun Bhan
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
Sandra Ruffin
VP - Senior Credit Officer
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 One, Affirms One and Downgrades One Class of COMM 2003-LNB1
