Approximately $135.5 Million of Structured Securities Affected
New York, July 18, 2013 -- Moody's Investors Service (Moody's) upgraded the ratings of two classes,
downgraded one classes and affirmed ten classes of COMM 2003-LNB1,
Commercial Mortgage Pass-Through Certificates as follows:
Cl. A-1A, Affirmed Aaa (sf); previously on Feb
7, 2013 Affirmed Aaa (sf)
Cl. B, Affirmed Aaa (sf); previously on Feb 7,
2013 Affirmed Aaa (sf)
Cl. C, Affirmed Aaa (sf); previously on Feb 7,
2013 Affirmed Aaa (sf)
Cl. D, Upgraded to Aaa (sf); previously on Feb 7,
2013 Affirmed Aa3 (sf)
Cl. E, Upgraded to A1 (sf); previously on Feb 7,
2013 Affirmed Baa1 (sf)
Cl. F, Affirmed Ba1 (sf); previously on Feb 7,
2013 Affirmed Ba1 (sf)
Cl. G, Affirmed B2 (sf); previously on Feb 7,
2013 Affirmed B2 (sf)
Cl. H, Affirmed Caa1 (sf); previously on Feb 7,
2013 Affirmed Caa1 (sf)
Cl. J, Affirmed Ca (sf); previously on Feb 7,
2013 Affirmed Ca (sf)
Cl. K, Affirmed C (sf); previously on Feb 7, 2013
Affirmed C (sf)
Cl. L, Affirmed C (sf); previously on Feb 7, 2013
Affirmed C (sf)
Cl. M, Affirmed C (sf); previously on Feb 7, 2013
Affirmed C (sf)
Cl. X-1, Downgraded to B3 (sf); previously on
Feb 7, 2013 Affirmed Ba3 (sf)
RATINGS RATIONALE
The upgrades of principal classes D and E are due to overall improved
pool financial performance and increased credit support due to loan payoffs
and amortization.
The downgrade of the IO Class, Class X-1, is a result
of the change in weighted average rating factor (WARF) of its referenced
classes.
The affirmations of principal classes A-1A, B and C 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.
The ratings of classes F through M are consistent with Moody's expected
loss and thus are affirmed.
Moody's rating action reflects a base expected loss of 17.2%
of the current balance. At last review, Moody's base
expected loss was 5.0%. Moody's base expected loss
plus realized losses is now 5.7% of the original pooled
balance compared to 5.6% at the prior 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 Fusion U.S. CMBS Transactions" published in
April 2005, 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 3 compared
to 13 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 February
7, 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 July 10, 2013 distribution date, the transaction's
aggregate certificate balance has decreased by 84% to $135.7
million from $846 million at securitization. The Certificates
are collateralized by 12 mortgage loans ranging in size from 1%
to 48% of the pool. The pool contains one loan with an investment
grade credit assessment, representing 48% of the pool.
There are currently no loans defeased.
Three loans, representing 7% 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 an aggregate
realized loss of $25.2 million (72% loss severity
on average). Four loans, representing 33% of the pool,
are currently in special servicing. The largest specially serviced
loan is the Palladium at Birmingham ($32.6 million --
24.1% of the pool), which is secured by two non-contiguous,
Class A retail centers located in Birmingham, Michigan. The
loan transferred to special servicing in February 2013 due to imminent
monetary default. Per the servicer, there are negotiations
regarding a loan modification. As of January 2013, the property
was 79% leased as leasing efforts continue.
The second largest specially serviced loan is the Fredericksburg Shopping
Center Loan ($5.8 million -- 4.3% of
the pool), which is secured by a 102,262 square foot (SF)
anchored retail center located in Fredericksburg, Virginia.
The loan was transferred to special servicing in June 2013 due to imminent
maturity default. The property is anchored by Bottom Dollar Food,
29% of the net rentable area (NRA), with a lease until July
2017. Performance has improved due to rent steps and newly signed
leases at higher rental rates. As of March 2013, the property
was 95% leased. The borrower is pursuing the sale of the
property but may request a maturity extension.
The third largest specially serviced loan is the Offices at Pennington
Point Loan ($3.7 million -- 2.7% of the
pool), which is secured by a 29,657 SF Class B professional
office park located in Pennington, New Jersey. The loan was
transferred to special servicing in June 2012 due to bankruptcy by the
borrower. As of December 2012, the property was 71%
leased.
Moody's estimates an aggregate $19.2 million loss
for two specially serviced loans (53% expected loss on average).
Moody's has assumed a high default probability for two poorly performing
loans representing 5% of the pool and has estimated an aggregate
$2.9 million loss (41% expected loss based) from
these troubled loans.
Moody's was provided with full year 2012 operating results for 100%
of the pool's non-specially serviced loans. Excluding
specially serviced and troubled loans, Moody's weighted average
LTV is 81% compared to 78% at Moody's prior review.
Moody's net cash flow reflects a weighted average haircut of 12%
to the most recently available net operating income. Moody's
value reflects a weighted average capitalization rate of 9.65%.
Excluding special serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.17X and 1.36X, respectively,
compared to 1.44X and 1.33X 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 largest loan with a credit assessment is the 75 Rockefeller Plaza
Loan ($65.0 million -- 47.9% of the pool),
which is secured by a 578,241 SF office building that is part of
the Rockefeller Center complex in New York City. The property is
100% leased to Time Warner Companies Inc. (Moody's Senior
Unsecured Rating Baa2, Stable Outlook) under a 21-year triple
net lease that is coterminous with the loan's maturity in August 2014.
Time Warner has subleased all the space within the building, 96%
is currently occupied, and does not plan to renew its lease.
RXR Realty signed a 99-year triple net lease commencing in August
2014 and plan to redevelop the asset with completion expected in 3Q 2015.
Moody's credit assessment and stressed DSCR are Aa1 and 2.23X,
respectively, compared to Aa1 and 2.18X at last review.
The top three conduit loans represent 10.8% of the pool.
The largest conduit loan is the Shaw's Merrimack Loan ($9.7
million -- 7.2% of the pool), which is secured
by a 65,000 SF grocery center located in Merrimack, New Hampshire.
The property is 100% leased to Shaw's Supermarket until February
2024. Performance has remained stable. Moody's LTV and stressed
DSCR are 98% and 1.10X, respectively, compared
to 100% and 1.08X at last review.
The second largest conduit loan is the Crystal Lake MHC Loan ($2.8
million -- 2.1% of the pool), which is secured
by 175-unit mobile home park located in Troy Township, Ohio.
The loan is on the watchlist since it has passed its maturity date.
As of March 2013, the property was 82% occupied compared
to 85% in December 2012. Performance has remained stable
and the loan has amortized 16% since securitization. Moody's
LTV and stressed DSCR are 78% and 1.28X, respectively,
compared to 79% and 1.27X at last review.
The third largest conduit loan is the Walgreens Douglasville Loan ($2.2
million -- 1.6% of the pool), which is secured
by a 15,000 SF Walgreens located in Douglasville, Georgia.
Performance has remained stable and the loan has amortized 36%
since securitization. Moody's LTV and stressed DSCR are 67%
and 1.54X, respectively, compared to 71% and
1.45X 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.
Randy Goldstein
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 Two, Downgrades One and Affirms Ten CMBS Classes of COMM 2003-LNB1
