Approximately $111.7 Million of Structured Securities Affected
New York, December 09, 2010 -- Moody's Investors Service (Moody's) upgraded the ratings of three classes,
downgraded three classes and affirmed two classes of LB Commercial Mortgage
Trust, Commercial Mortgage Pass-Through Certificates,
Series 1998-C4 as follows:
X, Affirmed at Aaa (sf); previously on Nov 10, 1998 Assigned
Aaa (sf)
F, Upgraded to Aaa (sf); previously on Jan 16, 2008 Upgraded
to A2 (sf)
G, Upgraded to Aa3 (sf); previously on Nov 14, 2006 Upgraded
to Ba1 (sf)
H, Upgraded to Ba1 (sf); previously on Nov 24, 1998 Assigned
Ba3 (sf)
J, Affirmed at B1 (sf); previously on Nov 24, 1998 Assigned
B1 (sf)
K, Downgraded to Caa1 (sf); previously on Feb 28, 2005
Downgraded to B3 (sf)
L, Downgraded to C (sf); previously on Feb 28, 2005 Downgraded
to Caa2 (sf)
M, Downgraded to C (sf) previously on Jan 15, 2003 Downgraded
toCaa3 (sf)
RATINGS RATIONALE
The upgrades are due to increased credit subordination levels resulting
from paydowns and amortization and overall stable pool performance.
The downgrades are due to interest shortfalls and higher expected losses
resulting from realized and anticipated losses from specially serviced
loans.
The affirmations are due to key parameters, including Moody's
loan to value (LTV) ratio, Moody's stressed 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
5.0% of the current balance. At last review,
Moody's cumulative base expected loss was 1.1%.
Moody's stressed scenario loss is 11.3% 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 analysis reflects a forward-looking view of the likely
range of collateral performance over the medium term. From time
to time, Moody's may, if warranted, change these
expectations. Performance that falls outside an acceptable range
of the key parameters may indicate that the collateral's credit
quality is stronger or weaker than Moody's had anticipated during
the current review. Even so, deviation from the expected
range will not necessarily result in a rating action. There may
be mitigating or offsetting factors to an improvement or decline in collateral
performance, such as increased subordination levels due to amortization
and loan payoffs or a decline in subordination due to realized losses.
Primary sources of assumption uncertainty are the current stressed macroeconomic
environment and continuing weakness in the commercial real estate and
lending markets. Moody's currently views the commercial real
estate market as stressed with further performance declines expected in
the industrial, office, and retail sectors. Hotel performance
has begun to rebound, albeit off a very weak base. Multifamily
has also begun to rebound reflecting an improved supply / demand relationship.
The availability of debt capital is improving with terms returning towards
market norms. Job growth and housing price stability will be necessary
precursors to commercial real estate recovery. Overall, Moody's
central global scenario remains "hook-shaped" for 2010
and 2011; we expect overall a sluggish recovery in most of the world's
largest economies, returning to trend growth rate with elevated
fiscal deficits and persistent unemployment levels.
The principal methodologies used in this rating were "CMBS: Moody's
Approach to Rating Fusion Transactions" published in April 2005 and "CMBS:
Moody's Approach to Rating Credit Tenant Lease (CTL) Backed Transactions"
published in October 1998, which are available on Moody's
website at www.moodys.com.
In addition to methodologies and research available on moodys.com,
Moody's publishes a weekly summary of structured finance credit,
ratings and methodologies, available to all registered users of
our website, at www.moodys.com/SFQuickCheck.
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.
For deals that include a pool of CTL loans, Moody's currently
uses a Gaussian copula model, incorporated in its public CDO rating
model CDOROMv2.6 to generate a portfolio loss distribution to assess
the ratings. Under Moody's CTL approach, the rating
of a transaction's certificates is primarily based on the senior
unsecured debt rating (or the corporate family rating) of the tenant,
usually an investment grade rated company, leasing the real estate
collateral supporting the bonds. This tenant's credit rating
is the key factor in determining the probability of default on the underlying
lease. The lease generally is "bondable", which
means it is an absolute net lease, yielding fixed rent paid to the
trust through a lock-box, sufficient under all circumstances
to pay in full all interest and principal of the loan. The leased
property should be owned by a bankruptcy-remote, special
purpose borrower, which grants a first lien mortgage and assignment
of rents to the securitization trust. The dark value of the collateral,
which assumes the property is vacant or "dark", is then
examined to determine a recovery rate upon a loan's default.
Moody's also considers the overall structure and legal integrity
of the 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 27
compared to 29 at Moody's prior review.
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 16, 2008.
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 November 15, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 95% to $111.7
million from $2.03 billion at securitization. The
Certificates are collateralized by 51 mortgage loans ranging in size from
less than 1% to 7% of the pool, with the top ten non-defeased
loans representing 42% of the pool. Nine loans, representing
11% of the pool, have defeased and are collateralized with
U.S. Government securities. At last review defeasance
represented 32% of the pool balance. The pool contains 20
loans, representing 30% of the pool, that are CTL loans.
Eight loans, representing 25% 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.
Twenty-four loans have been liquidated from the pool, resulting
in an aggregate realized loss of $39.2 million (29%
loss severity on average). The pool had experienced $16.0
million in realized losses at last review. Five loans, representing
8% of the pool, are currently in special servicing.
The master servicer has recognized an aggregate $1.6 million
appraisal reduction for two of the specially serviced loans. Moody's
has estimated an aggregate $3.6 million loss (40%
expected loss on average) for these loans.
Based on the most recent remittance statement, Classes J through
N have experienced cumulative interest shortfalls totaling $8.2
million. Moody's anticipates that the pool will continue to experience
interest shortfalls because of the high exposure to specially serviced
loans. Interest shortfalls are caused by special servicing fees,
including workout and liquidation fees, appraisal entitlement reductions
(ASERs) and extraordinary trust expenses.
Moody's was provided with full year 2009 and partial year 2010 operating
results for 94% and 81% of the pool, respectively.
Excluding specially serviced and CTL loans, Moody's weighted
average LTV is 68% compared to 82% 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
10.1%.
Excluding specially serviced and CTL loans, Moody's actual
and stressed DSCRs are 1.39X and 1.79X, respectively,
compared to 1.46X and 1.55X 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 performing conduit loans represent 19% of the pool
balance. The largest loan is the 1800 West Valencia Road Loan ($7.8
million -- 7.0% of the pool), which is secured
by a 191,000 square foot (SF) retail property located in Tucson,
Arizona. The property is 100% leased to Lowe's Home
Center through August 2019. Performance has been stable.
The loan has amortized 26% since securitization. Moody's
LTV and stressed DSCR are 69% and 1.53X, respectively,
compared to 65% and 1.64X at last review.
The second largest loan is the Pinnacle Center Loan ($7.1
million -- 6.4% of the pool), which is secured
by a 230,000 SF retail property located in Thornton, Colorado.
As of July 2010 the property was 77% leased compared to 91%
at securitization. Performance has improved in the first 6 months
of 2010 compared to the previous year. The loan has amortized 16%
since securitization. Moody's LTV and stressed DSCR are 82%
and 1.31X, respectively, compared to 83% and
1.31X at last review.
The third largest loan is the Chesterfield Meadows Shopping Center Loan
($5.8 million -- 5.2% of the pool) which
is secured by a 70,000 SF retail center located in Richmond,
Virginia. As of March 2010 the center was 96% leased compared
to 98% at securitization. Performance has been stable.
The loan has amortized 16% since securitization. Moody's
LTV and stressed DSCR are 48% and 2.20X, respectively,
compared to 54% and 1.95X at last review.
The CTL component includes 20 loans secured by properties leased under
bondable leases. The largest CTL exposures are Sweetbay Supermarket
($8.8 million, 7.9% of the pool;
parent Delhaize America, Inc; Moody's senior unsecured rating
Baa3; stable outlook), CVS/Caremark Corp. ($6.1
million, 5.5% of the pool; Moody's senior unsecured
rating Baa2; stable outlook) and Walgreen Co. ($5.6
million, 5.0% of the pool; Moody's senior unsecured
rating A2; stable outlook).
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
Dariusz Surmacz
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Keith Banhazl
Vice President - Senior Analyst
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 Three, Downgrades Three and Affirms Two CMBS Classes of LBCMT 1998-C4
