Approximately $778.4 Million of Structured Securities Affected
New York, December 09, 2010 -- Moody's Investors Service (Moody's) upgraded the rating of two classes,
downgraded the ratings of three classes and affirmed 16 classes of LB
UBS Commercial Mortgage Trust Commercial Mortgage Pass-Through
Certificates, Series 2003-C7 as follows:
Cl. A-2, Affirmed at Aaa (sf); previously on
Oct 15, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-3, Affirmed at Aaa (sf); previously on
Oct 15, 2003 Definitive Rating Assigned Aaa (sf)
Cl. A-4, Affirmed at Aaa (sf); previously on
Oct 15, 2003 Definitive Rating Assigned Aaa (sf)
Cl. B, Affirmed at Aaa (sf); previously on Apr 20,
2006 Upgraded to Aaa (sf)
Cl. C, Affirmed at Aaa (sf); previously on Apr 20,
2006 Upgraded to Aaa (sf)
Cl. D, Upgraded to Aaa (sf); previously on Apr 20,
2006 Upgraded to Aa2 (sf)
Cl. E, Upgraded to Aa1 (sf); previously on Apr 20,
2006 Upgraded to Aa3 (sf)
Cl. F, Affirmed at A2 (sf); previously on Oct 15,
2003 Definitive Rating Assigned A2 (sf)
Cl. G, Affirmed at A3 (sf); previously on Oct 15,
2003 Definitive Rating Assigned A3 (sf)
Cl. H, Affirmed at Baa1 (sf); previously on Oct 15,
2003 Definitive Rating Assigned Baa1 (sf)
Cl. J, Affirmed at Baa2 (sf); previously on Oct 15,
2003 Definitive Rating Assigned Baa2 (sf)
Cl. K, Affirmed at Ba1 (sf); previously on Jun 18,
2009 Downgraded to Ba1 (sf)
Cl. L, Affirmed at Ba3 (sf); previously on Jun 18,
2009 Downgraded to Ba3 (sf)
Cl. M, Affirmed at B1 (sf); previously on Jun 18,
2009 Downgraded to B1 (sf)
Cl. N, Affirmed at B2 (sf); previously on Jun 18,
2009 Downgraded to B2 (sf)
Cl. P, Downgraded to Caa1 (sf); previously on Jun 18,
2009 Downgraded to B3 (sf)
Cl. Q, Downgraded to Ca (sf); previously on Jun 18,
2009 Downgraded to Caa2 (sf)
Cl. S, Downgraded to C (sf); previously on Jun 18,
2009 Downgraded to Caa3 (sf)
Cl. BA, Affirmed at Baa3 (sf); previously on Jun 18,
2009 Downgraded to Baa3 (sf)
Cl. A-1b, Affirmed at Aaa (sf); previously on
Oct 15, 2003 Definitive Rating Assigned Aaa (sf)
Cl. X-CL, Affirmed at Aaa (sf); previously on
Oct 15, 2003 Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The upgrades are due to the significant increase in subordination due
to loan payoffs and amortization and overall stable pool performance.
The pool has paid down by 12% since Moody's last review.
The downgrades are due to higher expected losses for the pool resulting
from realized and anticipated losses from specially serviced and troubled
loans.
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
3.7% of the current balance. At last review,
Moody's cumulative base expected loss was 3.0%.
Moody's stressed scenario loss is 5.3% 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 U.S. Conduit Transactions"
published in September 2000 and "CMBS: Moody's Approach
to Rating Large Loan/Single Borrower Transactions" published in
July 2000.
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 underlying rating 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 underlying rating 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 8 compared
to 12 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 June 18, 2009. 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 18, 2010 distribution date, the transaction's
aggregate certificate balance has decreased by 44% to $820.3
million from $1.5 billion at securitization. The
Certificates are collateralized by 38 mortgage loans ranging in size from
less than 1% to 25% of the pool, with the top ten
loans representing 81% of the pool. The pool contains four
loans with investment grade credit estimates that represent 50%
of the pool. Four loans, representing 6% of the pool,
have defeased and are collateralized with U.S. Government
securities, compared to 17% at last review.
Four loans, representing 1% 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.
Two loans have been liquidated from the pool, resulting in an aggregate
realized loss of $604,000 (18% loss severity overall).
Four loans, representing 19% of the pool, are currently
in special servicing. The largest specially serviced loan is The
Parklawn Building Loan ($100.0 million -- 12.3%),
which is secured by a 18 story class B office building with 1.3
million square feet located in Rockville, Maryland. The property
is occupied by GSA. The loan was transferred to Special Servicing
due to imminent maturity default. The GSA has extended their lease
until 2015 from 2010 and the borrower has been granted a three year loan
extension. The loan is current. No losses are estimated
at this time. Moody's LTV and stressed DSCR are 94%
and 1.06X, respectively, compared to 97% and
1.03X at last review.
The second largest specially serviced loan is the Shops at Gainey Village
Loan ($35.8 million -- 4.4%), which
is secured by a 138,000 square foot unanchored shopping center located
in Scottsdale, Arizona. The property was 78% leased
as of March 2010, compared to 94% at last review.
The loan was transferred to Special Servicing due to imminent default.
The loan matures in June 2011.
The remaining two specially serviced loans are secured by a multifamily
and unanchored retail property. The master servicer has recognized
appraisal reductions totaling $34.7 million for two of the
specially serviced loans. Moody's has estimated an aggregate $24.4
million loss (45% expected loss on average) for all of the specially
serviced loans.
Moody's was provided with full year 2009 operating results for 100%
of the pool. Excluding specially serviced and troubled loans,
Moody's weighted average LTV is 89% essentially the same
as 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 9.3%.
Excluding specially serviced and troubled loans, Moody's actual
and stressed DSCRs are 1.53X and 1.15X, respectively,
compared to 1.55X and 1.14X 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 estimate is the Bank of America Building
Loan ($206.7 million -- 25.3%),
which is secured by 1.1 million square feet of office space in
midtown Manhattan. The top three tenants are Bank of America (Moody's
senior unsecured rating A2, 18.6% of the net rentable
area (NRA), lease expiration in 2013), Towers Perrin Forster
& Crosby (9% of the NRA, lease expiration in 2018),
and Sithe Energies/Dynergy Inc (8% of the NRA, lease expiration
in October 2011). The property was 100% leased as of December
2009, compared to 89% at last review. Moody's current
credit estimate and stressed DSCR are Baa3 and 1.32X, respectively,
essentially the same as at last review.
The second loan with a credit estimate is the Valley Plaza Shopping Center
Loan ($91.7 million -- 11.2%),
which is secured by a 1.1 million square foot super-regional
mall located in Bakersfield, California. The top three tenants
are JC Penny (13% of the NRA, lease expiration in 2016),
Macy's (13% of the NRA, lease expiration in 2021),
and Sears (19% of the NRA, lease expiration in October 2064).
Occupancy was 90% as of June 2010, compared to 94%
at last review. The loan has amortized 4% since last review.
Performance has improved due to increase in rental revenue and amortization.
Moody's current credit estimate and stressed DSCR are A3 and 1.7X,
respectively, compared to Baa1 and 1.68X at last review.
The third loan with a credit estimate is the Westfield Shoppingtown Santa
Anita Loan ($67.0 million -- 8.2%),
which is secured by a 1.1 million square foot regional mall located
18 miles east of downtown Los Angles, California. The top
three tenants are JC Penny (18% of the NRA, lease expiration
in 2037), Macy's (17% of the NRA, lease expiration
in 2037), and Nordstrom (13% of the NRA, lease expiration
in 2014). Occupancy was 97% as of September 2010,
compared to 92% at last review. Moody's current credit estimate
and stressed DSCR are Aaa and 3.51X, respectively,
compared to Aaa and 3.29X at last review.
The fourth loan with a credit estimate is the Visalia Mall Loan ($39.4
million -- 4.8%), which is secured by a 440,000
square foot single level regional mall located in Visalia, California.
The top two tenants are Macy's ( 34% of the NRA, lease
expiration in 2013), and JC Penny (24% of the NRA,
lease expiration in 2024). The property was 95% leased as
of June 2010, compared to 98% at last review. Performance
is stable with a benefit from amortization. The loan has amortized
4% since last review. Moody's current credit estimate and
stressed DSCR are A3 and 1.71X, respectively, compared
to Baa1 and 1.7X at last review.
The top three performing conduit loans represent 13% of the pool
balance. The largest loan is the Moorestown Mall Loan ($56.4
million -- 6.9%), which is secured by a 1.1
million square foot regional mall located in Moorestown Township,
New Jersey. The top three tenants are Boscov's (19%
of the NRA, lease expiration in 2015), Macy's (18%
of NRA, lease expiration in 2098), and Lord & Taylor (11%
of the NRA, lease expiration in 2098). The property was 92%
leased as of September 2010, similar to last review. Performance
declined due to increase in expenses. Moody's LTV and stressed
DSCR are 94% and 1.06X, respectively, compared
to 84% and 1.18X at last review.
The second largest loan is the Shepherd Office Center Loan ($31.0
million -- 3.8%), which is secured by a 637,000
square foot office property in Oklahoma City, Oklahoma. The
property was 84% leased as of June 2010, compared to 84%
at last review. Moody's LTV and stressed DSCR are 95%
and 1.13X, respectively, compared to 140% and
0.77X at last review.
The third largest loan is the Gotham Park Loan ($21.6 million
- 2.7%), which is secured by a 93,000
square foot office located in New York, New York. The property
has been 100% leased as of June 2010, which is similar to
last review and securitization. Performance has been stable.
Moody's LTV and stressed DSCR are 70% and 1.48X,
respectively, compared to 67% and 1.53X at last review.
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 purposes 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
Polina Margolina
Associate 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 Two, Downgrades Three and Affirms 16 CMBS Classes of LB UBS 2003-C7
